The Hong Kong economy in the first quarter of the current year demonstrated growth rates that significantly exceeded preliminary expectations for the dynamic of the corresponding indicator.
The specified result is unequivocal evidence that the mentioned city, which is a special administrative region of the People’s Republic of China, is currently on a trajectory of confident recovery after the period of the downturn associated with the coronavirus pandemic.
In January-March 2024, Hong Kong’s gross domestic product (GDP) showed growth of 2.7% compared to the same period last year. The relevant data on Thursday, May 2, were released by the Census and Statistics Department. Economists interviewed by the media predicted that Hong Kong’s GDP growth for the first quarter of 2024 would be fixed at 0.8%. The final result significantly exceeded the preliminary estimates, which is an example of a kind of positive discrepancy between reality and expectations.
For Hong Kong officials, the GDP growth rates recorded in the first three months of the current year are what can be called an encouraging signal. Currently, the Hong Kong leadership is committed to stimulating the positive economic dynamic. However, the related efforts face obstacles such as weak demand observed in mainland China and high borrowing costs.
The official economic growth target for 2024, set by the Hong Kong leadership, is in the range of 2.5%-3.5%. The mentioned data for the first quarter indicate that achieving this goal is a realistic scenario. At the same time, by the end of the current year, the vector of the economic situation may change, including at the global level. Moreover, the risks of force majeure cannot be excluded.
Samuel Tse, an economist at DBS Bank, says that the data for the first quarter indicate good momentum in Hong Kong at the beginning of 2024. According to the expert, among the possible reasons for the positive dynamic may be the recovery of the stock market. Samuel Tse noted that the data for the first quarter was a signal that the economic situation in Hong Kong is not as bad as many people think.
Currently, the city is also making significant efforts to strengthen its status as the premier financial hub of Asia. The Hong Kong leadership is also interested in strengthening the local tourism sector. The corresponding status of the city has faced significant damage amid the coronavirus pandemic. Also, the tightening of the national security crackdown has become a negative factor affecting the situation in the Hong Kong tourism sector.
Compared with the indicator of the fourth quarter of 2023, the city’s GDP increased by 2.3% in January-March 2024. In October-December last year, this figure increased by 0.4% compared to the result for the same period in 2022.
Optimism about the outlook for Hong Kong’s economy has strengthened after home-buying curbs bolstered. Against the background of this decision, the sales rate of new homes in the city reached an 11-year high in March. At the same time, investment demand is expected to be limited to a certain extent due to high-interest rates, which have become measures implemented by the Federal Reserve System as part of countering inflation.
A spokesman for the Hong Kong government said that a longer period of tough financial conditions could be a factor of some deterrent effect on economic confidence and activity.
Household spending in the city in the first quarter of 2024 showed an increase of 1% compared to the result for the same period last year. This indicator indicates a low level of confidence in the prospects of the foreseeable future in the economic space.
Hong Kong’s services exports grew 8.1% year-on-year in the first quarter of 2024. It is worth noting that this indicator includes the spending of tourists. In the last quarter of 2023, exports of services showed an increase of 21.2% compared to the result for the same period in 2022. A spokesman for the Hong Kong government said that in the future, activity in this area will be supported by the continuation of the tendency to restore inbound tourism. Also in this context, the efforts of the Hong Kong leadership to promote the economy of mega-events and the growth of capacity were mentioned as the factor of positive impact.
Separately, a spokesman for the Hong Kong government said that geopolitical tensions would continue to affect exports of goods. At the same time, in this context, it was also noted that there is reason to expect some improvement in the state of affairs in the corresponding plane against the background of a relatively good indicator of domestic demand.
A strong local currency pegged to the US dollar has become a factor in the damage to inbound tourism. Against this background, residents have become more active in visiting mainland China to shop and dine.
More than 11 million people visited Hong Kong in the first quarter of 2024. This indicator showed a more than twofold increase compared to the result for the same period last year.
At the same time, the exchange rate pegged to the national currency of the United States helped to increase the burnish of the Hong Kong dollar amid the threat of maintaining high interest rates in the US.
On Thursday, the Hang Seng index jumped 2.5% and entered a technical bull market, in a rally that coincided with the strength of the Hong Kong dollar.
Exports of goods from the city in the first quarter of 2024 showed an increase of 6.7% compared to the result for the same period last year. Imports are also on an upward trajectory. In January-March 2024, the corresponding indicator increased by 3.2% year-on-year.
The unemployment rate in Hong Kong is currently at 3%. Inflation in the city nowadays is 2%.
Last year, the city’s economy showed growth of 3.2%. In 2022, Hong Kong faced a downturn. Weak global demand has become a factor in slowing down the recovery of the local economic system after the coronavirus pandemic. It is worth noting that the preliminary forecasts for the prospects of 2022 were more optimistic than the final figures.
Hong Kong’s Financial Secretary Paul Chan Mo-po has repeatedly stated the need to re-evaluate the pace of recovery of the local economy. In this context, he drew particular attention to possible delays in cutting interest rates in the United States. At the same time, Paul Chan Mo-po noted that there will be no drastic changes in forecasts. According to him, Hong Kong may face materializations of the likelihood of a longer keeping of interest rates at a high level, as the Fed stated that a change in monetary policy towards easing may take longer than initially expected after the latest inflation data in the United States indicate an increase in the corresponding tendency, which came as a surprise after the previous one the trend of slowing growth in the cost of goods and services.
A spokesman for the Hong Kong government says that the continued growth of the local economy should support investment in fixed assets, but underlined that tough financial conditions may worsen the relevant prospects.
Junyu Tan, North Asia economist for Coface Greater China Services, a credit insurance firm, expects a more balanced recovery in the second half of 2024. In this case, it implies the recovery of the economic system of Hong Kong. The expert also predicts a cutting in interest rates and an improvement in trade flows, which compensates for a decrease in private consumption.
According to Junyu Tan, Hong Kong’s economy will show growth of 2-3% in 2024. The expert also notes that the city is facing structural challenges, implying in this case, among other things, a new norm in the form of a one-hour living circle with the Greater Bay Area. This is Beijing’s plan to link Hong Kong and Macau with nine cities in Guangdong Province to form an economic powerhouse. Against the background of the implementation of the relevant intention, it is less likely that the Hong Kong tourism sector will be able to recover from those indicators that were observed before the coronavirus pandemic. A signal of the realism of this scenario is the increase in the number of local residents departing for weekend leisure.
Gary Ng, senior economist at Natixis Corporate and Investment Bank, predicts that the Hong Kong economy will show growth of 3% in the current year. In this context, the expert noted that the city continues to face problems such as lackluster consumption and a similar condition of investment activity, which is largely due to stagnation in the property market and residents heading to the north to spend. According to Gary Ng, despite the growth in exports, the recovery in the mentioned areas will be slow in the second and third quarters of 2024.
Thomas Shik Chun-sing, chief economist at Hang Seng Bank, expects Hong Kong’s economy to rise by 2.8% in the current year. According to the expert, against the background of a stable situation in the local labor market, the sentiment in the asset market has improved. Thomas Shik Chun-sing suggests that consumer confidence will recover. The expert also expects that government support measures will improve the situation in the tourism sector.
As we have reported earlier, Hong Kong Retail Sales Demonstrate Growth.
