Hong Kong’s economic growth slows down as border control remains

The city’s GDP expanded by 7.5% in the second quarter from 7.9% previously.

Hong Kong’s gross domestic product (GDP) grew by 7.5% in the second quarter of the year, according to the advanced estimates of the Census and Statistics Department.

This dipped from 7.9% in the first quarter (Q1) of the year that ended six consecutive quarters of contraction.

The OCBC Treasury Research linked the slow down to persisting border control amongst other containment measures.

“The two main drivers of GDP growth in Q1 including fiscal stimulus and strong external demand remained intact in the second quarter (Q2),” the OCBC said in a report.

“Despite the rebound, private consumption expenditure and fixed investments were still down by 8.3% and 3.5%, respectively from Q2 2019.”

It added that due to continued restrictions on tourism, exports of services fell by 43.3% from Q2 2019.

“This indicates that the economic recovery remained slow probably due to the ongoing containment measures in particular border controls,” the OCBC said, noting the support from fiscal stimulus and external demand may have already peaked.

Despite this, it expects local consumption to further pick up, which will likely be driven by a “faster-than-expected” drop in joblessness, couple with the rising vaccination rate and the rollout of e-consumption vouchers.

However, stronger economic recovery may still require the relaxation of border controls.

On this note, the OCBC maintained its GDP growth forecast at 5-6% for the full year 2021, assuming that partial border reopening will be seen in the second quarter.

Likewise, the UOB Bank expects that the economic outlook of the city will be “limited” by travel restrictions.

“Whilst sustained recovery in external demand, improving domestic job market and pent-up domestic demand are positive for Hong Kong’s outlook, the rebound will still be limited by strict COVID-19 safety measures and international travel restrictions as its economy is largely service-oriented,” UOB Bank said in a separate report.

It maintained its full-year forecast of 6.7%. It expects the official forecast of 3.5%-5.5% to be revised higher.