Hong Kong's Q2 GDP shrinks 1.4% y\/y, recovery seen slow

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HONG KONG: Hong Kong's economy contracted 1.4% in the second quarter from the same period a year earlier, advance government data showed on Monday, as exports and investments remained sluggish, and COVID-19 weighed on a wide range of economic activity.

The contraction was worse than the 0.6% drop forecast by DBS and a 0.5% decline seen by Standard Chartered. The city's economy shrank a revised 3.9% in the first quarter.

"Looking ahead, the worsening global economic prospects will continue to weigh on Hong Kong's export performance in the remainder of the year," the city government said in a statement, adding that external trade may get some relief if COVID restrictions on movements across the land border with the mainland are relaxed.

"Domestically, economic activities are likely to show further revival in the rest of the year, but the extent will depend on how the local epidemic evolves and how the tighter financial conditions affect consumer's spending power and sentiment," the government said.

Government measures, including a consumption voucher scheme, should lend support, it said.

On a quarterly basis, the economy grew a seasonally adjusted 0.9% in April-June period, as compared with a revised 2.9% decline in the previous quarter.

Hong Kong's borders have been largely closed since early 2020, as the city generally mirrors mainland China in adopting a "dynamic zero-COVID" strategy that aims to curb all outbreaks.

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While its precautions are not as strict as those on the mainland, the global financial hub retains some of the tightest curbs in the world.

"The zero-Covid policy will remain the biggest uncertainty of Hong Kong's economy in the short run as the pace of opening remains slow," said Gary Ng, senior economist at Natixis Corporate and Investment Bank.

"The current adjustment in border control will not be enough to bring the economy back to its normal trajectory," Ng said.

Last week, Financial Secretary Paul Chan said Hong Kong may have to further trim its annual economic growth forecast later in August, for the second time in three months, to factor in more external risks for the economy.

Hong Kong is expected to have a better performance in the second half of the year.

In May, the government lowered the real gross domestic product forecast for 2022 to 1%-2% from 2%-3.5%, after taking into account the deteriorating export outlook.

"If the border can reopen internationally in the fourth quarter, of course, it will have a boosting effect on the overall economy and atmosphere," said Samuel Tse, an economist at DBS Bank. - Reuters