Hong Kong’s economy grew 7.8% year-on-year in the three months ending March 2021. This follows six consecutive quarters of decline, raising hopes that the city is finally back on track for a recovery.
The strong growth figure was partly due to a low base of comparison, with the economy shrinking materially by 9.1% a year earlier as the coronavirus began to spread across the world and national lockdowns became the norm.
With social distancing and cross-border restrictions remaining in place in the city, the recovery is, however, uneven. It has been driven mainly by strength in merchandise exports (+30.6%) as major economies such as the U.S. and Mainland China bounce back from the pandemic. In Q1, their economies grew by 6.4% and 18.3% respectively.
In contrast with the resurgence in external demand, private consumption, which accounts for two-thirds of the city’s GDP, remained stagnant expanding by mere a 1.6% in Q1 (See Table 1).
Table 1: Year-on-year percentage change of GDP and its components
One reason for this is that many Hong Kongers have not benefited from the recovery, with the unemployment rate remaining high at 6.8% during the January to March period despite falling from the 17-year high of 7.2% over the previous rolling period.
Another possible cause of muted consumption could be consumers’ reluctance to engage in discretionary spending pending the distribution of the $5,000 electronic consumption vouchers in summer as announced by the Government in its last Budget.
A meaningful and substantive revival of the local economy appears to be out of reach at the moment as long as curbs on social and economic activities remain in force. The return to normalcy will be heavily dependent on the ability for Hong Kong to reach herd immunity but so far the rate of vaccination has progressed at a frustratingly sluggish pace.
Given all of these reason, it may be too early to celebrate despite the encouraging first quarter results.
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