Hong Kong’s economy contracted more than expected in the third quarter of 2022 as the city gradually rolled back Covid-related social and travel restrictions.
During the July to September period, real GDP shrank by 4.5% compared to a year earlier, according to the government’s advance estimates. The contraction, which was the most significant since the second quarter of 2020, followed two consecutive quarters of decline since the beginning of the year when the fifth and worst wave of the Covid pandemic struck.
Rising interest rates and a clouded economic outlook have continued to dampen consumer and investor confidence. Private consumption, which accounts for two-thirds of GDP, remained virtually unchanged in the third quarter compared to the same period a year earlier.
Gross domestic fixed capital formation, which measures investment spending and is more sensitive to economic conditions, registered a notable decline of 14.3% following the 2.1% drop in the second quarter. Only government spending registered a positive growth of 4.3%.
On the external front, total exports of goods dropped by 15.5%, after the 8.4% decline in the second quarter, as demand eased in major economies. In the U.S., economic activity is weighed down by high inflation and an aggressive tightening in monetary policy; in Europe, high energy prices stemming from the war in Ukraine are casting a pall over household spending and pushing up manufacturing costs; in China, the economy continues to be weighed down as it sticks to its “dynamic zero-Covid” strategy.
For the first nine months of 2022, Hong Kong’s economy contracted by 3.3% compared to the same period last year. To achieve neutral growth for the full year of 2022, a real GDP growth of just over 9% would have to be achieved in the fourth quarter. As matters currently stand, a recovery that is sufficiently strong enough to help Hong Kong’s economy ‘break even’ appears unlikely.
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