Hong Kong economy shrinks 4.5% in Q3, outlook remains weak

Hong Kong's economy shrank faster in the third quarter, contracting 4.5 per cent from the same period a year earlier, the third straight quarter of downturn, advance government data showed on Monday, as external demand remained weak.

The outcome was far worse than the growth of 0.6 per cent to 0.9 per cent projected by HSBC, Morgan Stanley and Natixis, and even the 0.3 per cent contraction forecast by Barclays. The city's economy shrank by 4.0 per cent and 1.3 per cent in the first and second quarters respectively.

It was the deepest contraction since the second quarter of 2020 when gross domestic product shrank 9.4 per cent as Covid-19 took its toll around the world.

"Looking ahead, the markedly deteriorating external environment will continue to pose immense pressure on Hong Kong's export performance in the remainder of the year," the city government said.

It said geopolitical tensions and developments in the pandemic would add downside risks despite easing quarantine rules for inbound visitors.

Tighter financial conditions and weak asset prices will increasingly offset the positive effects of better labour market conditions and a consumption voucher scheme, while rising borrowing costs will dampen fixed-asset investment, the government said.

On a quarterly basis, the economy shrank a seasonally adjusted 2.6 per cent in the July-September period, as compared with the 2.9 per cent decline in the first quarter and a 1 per cent growth in second quarter.

The government revised down its full-year economic forecast to a range of 0.5 per cent growth to a 0.5 per cent contraction from between 1 per cent and 2 per cent growth, citing a deteriorating global growth outlook, while the underlying inflation estimate for 2022 remained at 2 per cent.

"The short-term outlook of Hong Kong will continue to be challenging with the decelerating Chinese economy, the weakening global trade environment and the poor domestic household sentiment," said Gary Ng, senior economist at Natixis Corporate and Investment Bank.

"The measures in the policy address are not sufficient to reverse such trend," Ng added.

In his first policy address earlier this month, Hong Kong Chief Executive John Lee prioritised improving international competitiveness and attracting more overseas talent.

Covid-19 restrictions have weighed on the city's economy since early 2020, bringing tourism and business trips grinding to a halt and battering bars, restaurants and shops repeatedly for prolonged periods. REUTERS

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