Economics Weekly: Hong Kong's Rebound

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Chief Investment Office03 Feb 2023
  • Hong Kong: Reopening of Chinese border expected to boost Hong Kong’s economy on all fronts
  • Asia: Exports grew by 11% in 2022 despite momentum slowing through the year
  • Malaysia: Facing global external headwinds but cushioned by China’s reopening
  • Philippines: Expect a more moderate economic outlook in 2023 after a stellar 2022
Photo credit: iStock

Hong Kong's 2023 rebound after a 2022 contraction. Real gross domestic product (GDP) declined 4.2% y/y in 4Q22 to conclude 2022 at -3.5%. This marked the third annual contraction since 2019. On a sequential basis, it is largely flat. Looking ahead, the earlier-than expected reopening of the Mainland border will boost the Hong Kong economy on all fronts. Due primarily to a low base comparison, we have upgraded the 2023 GDP forecast from 3.8% to 6.5%. Meanwhile, inflation will accelerate at a moderate pace of 2.8%. All told, the city’s economy should be in a goldilocks scenario. Private consumption expenditure grew by 1.7% y/y in 4Q after 3 quarters of contraction. Unemployment rate fell from the 5.4% in Feb-Apr22 to 3.5% in 4Q. Contraction of labour force narrowed from -3.8% in Mar-May22 to -1.5% in 4Q22. The strengthening labour market should help the jobless rate to fall to the pre-social unrest level of 2.8%.

Retail sales set to rebound. Tourist spending accounted for around 30% of overall retail receipts before Covid, of which almost 80% were attributed to Mainland Chinese tourists. Daily visitor arrivals from the Mainland leapfrogged from an average of 2,100 in Dec-22 to around 10,400-16,400 since the Lunar New Year. This returned to around 40% of Jan-20 level. We expect tourism to see stronger growth momentum after Lunar New Year as China has reached herd immunity. Retail sales value is projected to grow by 20% this year, of which F&B and tourists hot picks such as jewellery, cosmetics, and clothing will see the strongest upside. These products saw the largest gap in comparison to 2019 levels.

On the external front, a decline in goods exports extended from 15.8% y/y in 3Q to 24.8% in 4Q amid lingering Covid-Zero policies in China. Shipment to the Mainland dropped by 25.0% in 4Q in value terms. Exports to US, EU, and UK also plunged by double-digits due to the tightening of monetary policy. Baltic Dry Index had retreated recently to mid-2020 levels, indicating a sagging global demand. Meanwhile, imports contracted further from 15.8% y/y in 3Q to 22.8 % in 4Q. Hopefully, shaky demand from the US and EU can be offset by the recovering Chinese economy upon entering 2Q23. Afterall, shipments to China account for 60% of Hong Kong’s exports. Cargo and flight capacities are building up in anticipation of the recovery ahead.

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