A LONG-TERM WARNING lurks in Hong Kong’s second-quarter GDP numbers. Services exports, mainly tourism and financial services, fell by 46.6% year-on-year, more than three times as much as in the second quarter of 2003, the height of the SARS outbreak.
That suggests there is more than Covid-19 in play now. With Hong Kong one of the active fronts in Washington’s face-off with Beijing following the imposition of the territory’s National Security Law, Hong Kong will not be looking attractive to either tourists or financiers. For how long is the question.
Overall, the economy shrank 9.0% year-on-year in the second quarter, a greater contraction than expected (the consensus forecast had been -8.3%). However, the quarter-on-quarter decrease of 0.1% was a marked slowing of the comparable figure for the first quarter of a 5.5% contraction.
That suggests stabilisation more than recovery. Despite the economy reopening, consumer spending fell by a record 14.5% year-on-year and fixed investment was down by 20.6%, a seventh successive drop.
The resumption of activity across the region, especially in mainland China, restored some demand for Hong Kong’s merchandise exports, but the United States’ decision to revoke Hong Kong’s special trade status hangs something of a dark cloud over the export sector.
The economy could contract by 10% for the full year, especially if the feared new surge of Covid-19 cases materialises, testing the government’s willingness to stimulate the economy again. It will release its new full-year forecast on August 14.