In the first quarter, Hong Kong’s economy grew at its fastest pace in more than a decade, but the rebound is sluggish, driven primarily by exports and hampered by weak consumer spending and a late vaccine rollout.
After falling for a record six quarters, gross domestic product increased 7.8 percent year on year, according to preliminary data released Monday, outperforming all forecasts in a Bloomberg survey of economists. The statistics were skewed by a low base a year ago when the economy was in lockout, but the quarter-on-quarter acceleration, which is a stronger indicator of growth momentum, outperformed.
According to the most recent results, the export sector is thriving while consumption remains subdued. The city’s hotels and retail establishments rely on tourism spending, especially from visitors from the mainland, and border closures have harmed those industries. The city’s ability to reopen and completely recover from the pandemic is being hampered by low vaccination rates.
“Having a high vaccination rate is important to have the border open between Hong Kong and China and also between Hong Kong and other foreign economies,” said Iris Pang, chief economist for Greater China at ING Bank NV. “Without the border open economic activities will only grow slowly.”
Hong Kong has had the most difficult two-year span in history, with unprecedented back-to-back annual contractions in 2019 and 2020 as the city dealt with waves of political instability, the fallout from the worsening US-China relationship, and the Covid-19 pandemic.
The economy has recently shown signs of a more robust recovery. In March, exports surpassed HK$400 billion ($51.5 billion) for the first time, while unemployment fell the most since 2003 in the month, easing back from a 17-year peak. Retail sales by volume increased by 30% in February, the first increase since January 2019.
On May 14, the government will release updated first-quarter estimates as well as its most recent full-year growth forecasts. Financial Secretary Paul Chan previously predicted that the economy will rise at a rate ranging from 3.5 percent to 5.5 percent in 2021, but that figure is likely to be revised higher now, given the strong first-quarter growth.
Citigroup Inc. lifted its full-year growth forecast to 6% from 4.6 percent, while Goldman Sachs Group Inc. economists raised theirs to 9.2 percent from 4.6 percent.
Nonetheless, economic activity remains below pre-recession levels as the pandemic and social distancing steps continue to weigh on consumer spending and tourism, according to the government’s report released on Monday. Although export demand is expected to remain high, the “revival of tourism-related activities will likely be slow in light of the still austere pandemic situation in many places around the world,” according to the study.
“Gradual relaxation of social distancing bodes well for domestic activities,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group Ltd. “What’s concerning is the relatively slow vaccination rate and the variant of virus strain. The government will maintain a tough stance in virus control measure.”