Hong Kong Economy Shrinks for 3rd Straight Quarter; Asian Financial Hub on Brink of Recession

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Hong Kong's economy contracted 4.5 percent in the third quarter, marking a third consecutive quarter of negative growth and pushing the financial hub into the brink of a recession. The city's economy had contracted by 4 percent and 1.3 percent in the first and second quarters.

Worse Than Projections

The government data on growth released on Monday was worse than the projections made by analysts across the board. HSBC, Morgan Stanley and Natixis had predicted that growth would be between 0.6 percent and 0.9 percent while Barclays had forecast a 0.3 percent contraction.

Hong Kong
Hong Kong Wikimedia Commons / Jim Trodel

"It's almost a done deal that Hong Kong will be in a recession this year,"Gary Ng, an economist at Natixis SA, told Bloomberg News. The analyst added that the poor third quarter numbers indicated rising pressure on the property market while consumption remained flat and trade collapsed.

Hong Kong's economic contraction was the deepest since the Q2 numbers of 2020 showed the GDP product shrank 9.4 percent after the onset of the Covid-19 pandemic.

"Looking ahead, the markedly deteriorating external environment will continue to pose immense pressure on Hong Kong's export performance in the remainder of the year," the government said.

Challenging Outlook

According to the authorities, though the labour market conditions were improving, the worsening financial conditions and weak asset prices will put pressure on the economy. Geopolitical tensions, China's zero-Covid and the general global demand slowdown were also adding to the negative sentiment in the Asian financial hub.

"The short-term outlook of Hong Kong will continue to be challenging with the decelerating Chinese economy, the weakening global trade environment and the poor domestic household sentiment ... The measures in the policy address are not sufficient to reverse such trend," analyst Gary NgNg added.

Analysts at Bloomberg Economics say that Hong Kong's GDP would shrink 3.4 percent in 2022, which will be significantly more than the 0.8 percent drop forecast earlier.

Hong Kong Dollar
Hong Kong Dollar Wikimedia Commons / Daderot

"Hong Kong's surprising 3Q GDP slump showed Covid reopening alone was unable to counter the pressure from slowing global demand, rising interest rates, and mainland China's Covid Zero restrictions. With so many headwinds out of the city's control, we see limited upside for the recovery in 4Q even if the government lifts the remaining Covid curbs. We now see GDP shrinking 3.4% in 2022 -- significantly more than the 0.8% drop we forecast earlier," they said.