Hong Kong sees growth recovery, but slump tipped in 2022

October 22, 2021

HONG KONG - Going beyond 2021, there are three main factors challenging the strength of the Hong Kong economy, says the global financial group Natixis, which expects a steep fall in Hong Kong's GDP in 2022.

First, says a Natixis economic report, the net outflow of residents since 2020 will reduce labour supply and weaken Hong Kong's competitiveness.

Second, the lack of international visitors will become even more of a burden as the rest of the world opens up.

Thirdly, China's economic slowdown will not help the Hong Kong economy in 2022.

"All in all, and assuming that that border restrictions for Hong Kong will only be gradually lifted in the second half of next year, Hong Kong's GDP growth rate is expected to slow down to 2.7% in 2022," the report says.

After experiencing the double-whammy of social unrest in 2019 and the COCID-19 shock in 2020, recovery of the Hong Kong economy finally came in H12021, with  GDP  growth reaching7.6% on-year, thanks to successful containment of the pandemic, says Natixis.

Easing of domestic mobility restrictions had shored up consumer confidence and supported recovery of private consumption. "In fact, private consumption accounted for over 60% of Hong Kong's GDP growth in Q2 of this year," it says.

"The strong momentum in private consumption will be sustained in Q3, but at a slower pace. Beyond the recovery of consumer confidence, the Government's consumption vouchers have lent another helping hand to household spending capability.

"In August, year-on-year retail sales accelerated from 2.7% in July to 12.0%, and Hong Kong's unemployment rate dropped from 5.5% in June to 4.7% in September.

"But continued closure of the border, especially with Mainland China, has resulted in a still-limited number of inbound visitors and, thus, very little change in tourism-related consumption. Given the less favourable base effect for Q3, the positive contribution of private consumption is expected to moderate.

"In external trade, growth in exports and imports is slowing as the base effect is no lo.nger supportive. Further, strong local spending is supporting imports, limiting the contribution of external demand to growth in Q3 2021."

Natixis says Hong Kong's economic confidence has continued to build in Q3. The PMI index remained expansionary, above 50 from July to September.

"Given the above, we expect Hong Kong's GDP to grow 4.5% YoY during Q3 of 2021. This is a moderation compared to Q22021, but still far above the average annual growth rates we have witnessed since 2012.

"Because there are only two months left for 2021, the growth momentum is expected to reach about 6% for the rest of the year, as long as the Hong Kong Government can still bring COVID infections under control during winter to sustain local consumer confidence.

www.research.nataxis.com (ATI).