Hong Kong’s economy contracts more than expected in 2022

Hong Kong’s economy suffered a 3.5 per cent contraction last year as the city struggled to preserve its status as Asia’s financial hub, but economists forecast a rebound to growth in 2023.

The Chinese territory’s economy shrank 4.2 per cent year on year in the fourth quarter of 2022, according to official government data released on Wednesday, marking a fourth consecutive quarter of contraction.

The full-year figure for 2022 was worse than government forecasts of a 3.2 per cent decline, while a contraction in the third quarter was revised down to 4.6 per cent, from 4.5 per cent.

Economists forecast Hong Kong’s economy to recover to 4 per cent growth in 2023, which would exceed regional rival Singapore, but warned it would take months for the battered economy to reach pre-pandemic output.

The city, which was effectively cut off from mainland China and the rest of the world under travel restrictions that lasted nearly three years, only dropped most of its Covid-19 curbs and resumed quarantine-free travel late last year.

A government spokesperson blamed disappointing figures on a plunge in exports and weakened domestic demand under the pandemic curbs. Total exports fell 8.6 per cent last year from 2021, to HK$4.5tn (US$570bn).

“An expected strong rebound of inbound tourism following the removal of quarantine arrangements for visitors and resumption of normal travel between Hong Kong and the mainland should underpin a recovery,” the spokesperson said while noting that “softer growth of advanced economies will continue to pose challenges”.

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Hong Kong has also faced financial pressure from falling property prices, which declined about 15 per cent last year. As home prices slid and interest rates rose, the number of negative equity mortgages in the city hit an 18-year high, jumping to 12,164 cases by the end of December from 533 in September.

Moody’s Analytics forecast Hong Kong’s 2023 gross domestic product growth at 4 per cent, which would surpass Singapore’s 2.1 per cent. The city-state, which reopened to the world months earlier, recorded growth of 3.8 per cent for 2022.

But Heron Lim, a Moody’s Analytics economist, said the “economic damage for Hong Kong will take time to heal”.

“We currently project that Hong Kong will only exceed pre-pandemic output peaks in 2024,” he said.

Natixis senior economist Gary Ng said Hong Kong could gain up to $22bn in annual tourism revenue, equivalent to 5.9 per cent of its economy, if travel was normalised with mainland China. 

Hong Kong recorded just 443,000 visitors in the first 11 months of 2022, less than 1 per cent of the same period in 2019. The recovery has also been gradual: just 163,000 travellers visited the city during the lunar new year holiday last week — traditionally a peak for mainland tourists — trailing far behind neighbouring gambling hub Macau with 451,000.

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But some local business representatives expressed optimism about the territory’s outlook.

“The return of mainland Chinese tourists has brought a glimpse of hope to the tourism and retail sectors, which play a vital role in Hong Kong’s recovery,” said Jonathan Choi, chair of Hong Kong’s Chinese General Chamber of Commerce. 

China’s economy expanded 3 per cent last year, its second-weakest growth rate since 1976, but the IMF this week raised the country’s 2023 growth forecast to 5.2 per cent as the economy reopens.

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