Hong Kong’s economy is regaining strong growth momentum on the back of rebounding exports but sluggish domestic consumption points to an uneven recovery that could stunt a broad-based revival in the months ahead.
Gross domestic product (GDP) surged 7.8% year-on-year in the first quarter, driven by a 30% burst in exports and despite lagging performance in other sectors, said Kenneth Lee, an economist at China CITIC Bank International. He said an uneven economic recovery means the city’s unemployment rate would probably remain between 6-6.5% until later this year.
Lee doesn’t expect a significant bounce in domestic consumption in the second quarter as the border between Hong Kong and the mainland is still closed due to Covid-19, while the government’s e-voucher program will not be delivered to local spenders until the summer, Lee said.
Hong Kong’s first-quarter GDP growth was better than expected while unemployment was also easing, said William Deng, North Asia economist at UBS. He said economic recovery will provide certain room for the government to focus more on containing Covid-19 and reduce the risk of another local wave, he added.
Hong Kong’s export machine is roaring back to life, albeit from a pandemic-caused low base in the first quarter of 2020. Exports of electrical machinery, apparatus and appliances, and electrical products jumped 43.1% while exports of telecommunications and sound recording and reproducing apparatus and equipment surged 29.3%.
Geographically, exports to mainland China increased 39.8% while shipments to the United States rose 19.5%. At the same time, private consumption expenditure grew a mere 1.6% in the first quarter, though that marked an improvement on the 6.9% decline recorded in the fourth quarter.
Despite the bullish year-on-year GDP and export figures, Hong Kong’s overall economic activity is still below pre-recession levels, as the pandemic and social distancing requirements continue to weigh on key economic segments, particularly those involving consumer-facing activities, said a government spokesman.
“It is essential for the community as a whole to spare no effort to keep the epidemic under control and to ensure the success of the Covid-19 vaccination program,” said the spokesman. “This will pave the way for a broad-based economic recovery and a gradual resumption of international travel.”
On Tuesday, the government said the value of total retail sales increased 7.5% in the first quarter from a year ago, thanks to a gradual relaxation of social distancing measures since mid-February.
Officials are bullish on the city’s prospects. Last month, Chief Executive Carrie Lam said in an interview with CGTN that Hong Kong was past the worst after the National Security Law was implemented to end social unrest. She said Hong Kong’s economy would grow by 3-5% this year.
Lam’s comment came before the announcement of Hong Kong’s jobless rate, which eased to 6.8% between January and March from 7.2% between December and February.
The unemployment rate in consumption and tourism-related sectors, including retail, accommodation and food services, fell 0.4 percentage points to 10.7%. The unemployment rate for food and beverage service activities declined from 14.1% to 13.3%.
As the pace of recovery was uneven across sectors and inbound tourism remained in the doldrums, the labor market could still face challenges in the near term, said Law Chi-kwong, the secretary for labor and welfare.
Since early February, Hong Kong’s epidemic situation has improved with less local infections recorded per day than in December and January.
More primary and secondary school students have been allowed to have face-to-face classes after mid-February. People have also become more willing to dine and shop outside since March. Some shopping malls in residential areas were crowded with people during weekends but many shops in tourist areas remained closed.
Although the government said restaurants could only utilize 50% of their seats and offer four seats per table, many restaurants have not strictly followed the rules. For example, a family of eight could still sit together and share dishes at one table with a transparent plastic board apparently separating them into two groups. Some restaurants utilized all tables between 12-3pm and closed from 4-6pm to achieve a 50% utilization rate on average.
In late April, several Covid patients infected with mutated virus strains were identified in Hong Kong, raising concerns that the territory could soon face a fifth-wave epidemic.
Samuel Tse, an economist at DBS Bank, said Hong Kong has benefited from the strong economic rebound in mainland China, as well as an initial recovery globally. He expected Hong Kong’s GDP to increase 7-8% in the second quarter, partly due to the expansion of the Return2hk scheme and the relaunch of a travel bubble scheme with Singapore.
The travel bubble, set to launch on May 26, is now under “review” after an outbreak of new cases, including of the Indian variant, in the Southeast Asian city-state.
Tse said the epidemic situations in India and other emerging countries were worrying and could affect Hong Kong’s economy. He said the overall GDP growth rate in Hong Kong would be about 4% this year due to predicted slower growth in the second half.
The Hong Kong government has suggested forming a travel bubble with Macau but the latter said the discussion would start only after Hong Kong could achieve zero local infections for two weeks.
According to a JPMorgan Chase forecast, if Hong Kong could achieve herd immunity with 60% of its population being vaccinated by the end of June, the city’s travel restrictions would be lifted while the full-year GDP growth rate for 2021 could reach 7.8%.
As of Tuesday, 573,000 people in Hong Kong have received their second dose of Covid vaccines while 416,700 have got their first dose. They account for about 13.2% of the city’s population of 7.5 million people.