GDP dives 9pc - and challenges far from over

Top News | Avery Chen and Bloomberg 30 Jul 2020

The Hong Kong economy contracted for the fourth consecutive quarter, with GDP shrinking by 9 percent in the second quarter from a year ago - worse than expected - as the Covid-19 pandemic and political chaos continued to weigh on the city.

The second-quarter contraction was worse than the median forecast of 8.3 percent and followed a revised 9.1 percent drop in the first quarter that was the worst since 1974, according to Bloomberg.

The overall economic situation showed signs of stabilization last quarter, as real GDP slid 0.1 percent on a quarter-to-quarter seasonally adjusted basis, according to the Census and Statistics Department.

It is because the epidemic situation was largely under control in the city in May and June and the mainland economic recovery also helped partly offset the external headwinds facing Hong Kong's exports of goods, the SAR government said.

However, the pandemic will remain a key threat to the global economic outlook, while the challenging external environment, evolving Sino-US tensions, and heightened geopolitical tensions will likely constrain Hong Kong's export performance in the near term, a government spokesman said.

He also warned that the recent surge in coronavirus cases has clouded the near-term outlook for domestic economic activity.

"Nonetheless, once the local epidemic is contained again and the external environment continues to improve, the Hong Kong economy hopefully will gradually recover in the rest of the year," the spokesman said.

The decline of GDP in the second quarter was mainly due to the continued weak performance in both domestic and external demand.

In the second quarter, Hong Kong's exports of services slumped 46.6 percent - compared with a decrease of 37.4 percent in the first quarter - with inbound tourism remaining at a standstill.

Regarding domestic demand, private consumption expenditure fell by 14.5 percent in the second quarter from a year earlier, deteriorating from the 10.6 percent decline in the first quarter.

This is due to local consumption activities being severely disrupted by the Covid-19 threat.

Outbound tourism came to a halt amid stringent travel restrictions and the sharp deterioration of labor market conditions also added strains on consumer sentiment.

"As an international hub that relies on passenger and goods flows, this figure summarizes the sharp contraction of tourism and the event industry," said Raymond Yeung, Greater China chief economist with Australia & New Zealand Banking Group.

"As the case numbers rise again in July and the government starts to tighten, the outlook for the third quarter remains very challenging."

Iris Pang, greater China chief economist with ING Bank, said: "We expect many small restaurants to shut down and unemployment to rise to around 8 percent."

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