A man fishes along Victoria Harbour in Hong Kong on May 8, 2022. (DALE DE LA REY / AFP)
Hong Kong’s economy contracted by 4 percent in the first quarter of 2022 as export and local economic activities were sharply weaker under the fifth wave of COVID-19. However, the city’s economy is expected to recover gradually in the rest of the year, according to the government’s news conference on Friday.
Slower global demand, a decrease in cross-border trade, as well as a new wave of the pandemic’s outbreak were the main factors that contributed to the recession in the first quarter, said Adolph Leung, the Hong Kong Special Administrative Region government economist.
As a result, the government revised its real GDP growth forecast for 2022 down to 1 to 2 percent from 2 to 3.5 percent previously.
“The lowering of Hong Kong’s GDP figure is expected because the first-quarter GDP has contracted 4 percent. The chamber has already cut the 2022 full-year forecast to 1.2 percent,” said Peter Wong Tung-shun, chairman of the Hong Kong General Chamber of Commerce -- the city’s oldest and largest chamber representing multinational companies.
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“Business sentiment improved notably of late,” Leung noted, citing both the S&P Global Hong Kong Purchasing Managers’ Index and a diffusion index on business receipts for small and medium-sized enterprises compiled by the government climbing towards 50 – which indicates a favorable business condition – in the past three months.
I hope by 2023, if there are no further rounds of the pandemic, we will see a stronger positive growth.
Adolph Leung, Economist, HKSAR govt
Looking ahead, Leung noted that Hong Kong’s economy will gradually regain momentum with the local epidemic receding and a relaxation of social distancing measures. He said that the relief measures the government has launched, such as the electronic consumption vouchers and employment support scheme, would also support domestic demand.
However, Hong Kong’s economy is still facing challenges and uncertainties as the worsening global economic environment may continue to weigh on the city’s exports, Leung added.
“As the US Federal Reserve will increase interest rates and trim its balance sheets, it will bring certain negative impacts on the Hong Kong business environment,” Wong cautioned.
The Hong Kong Monetary Authority raised the base rate to 1.25 percent last week, after the US Fed lifted interest rates by 50 basis points in its May meeting, raising the target range for the federal funds rate to 0.75 percent to 1 percent. This was the first 50 basis-point rate hike by the US central bank since 2000.
The US Fed also announced that it will start shrinking its balance sheet from June by not replacing assets as they mature. The balance sheet will be allowed to fall by $47.5 billion per month initially, rising to $95 billion per month after three months.
Meanwhile, George Leung Siu-kay, chief executive officer of the HKGCC, said the city is very likely to see economic contraction in the first half of this year.
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“Following the relaxation of social distancing measures, and with more inbound and outbound travel, we envisage that there will be some economic rebound in the second half of this year. Therefore, it will only end up with a very mild increase in growth this year,” Leung said.
“I hope by 2023, if there are no further rounds of the pandemic, we will see a stronger positive growth,” he added.
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