Government Economist Adolph Leung (center) presents the Half-yearly Economic Report 2023 at a press conference in Hong Kong on Aug 11, 2023. Also present were Principal Economist Joyce Cheung (left) and Assistant Commissioner for Census and Statistics Edith Chan. (PHOTO / HKSAR GOVT)

Hong Kong narrowed the forecast range for economic growth for the full year of 2023 as the city’s economic recovery fueled by inbound tourism and private consumption is outweighed by the faltering goods export sector, stock market volatility, and the subdued property market.

Data from the Census and Statistics Department of the Hong Kong Special Administrative Region government maintained the annual gross domestic product growth rate was 1.5 percent in the second quarter, having expanded 2.9 percent in the preceding quarter. 

In the period, the GDP figure reached 1.3 percent on a quarterly basis. The second quarter figure was the same as preliminary estimate made in July, when the first quarter figure was revised.

In its Friday press briefing, the government said that having taken into account the situation in the first half of this year, it has revised its full-year forecast, from the 3.5 percent to 5.5 percent forecast made in May, to 4 percent to 5 percent.  

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Government economist Adolph Leung commented: “The economic recovery momentum in the second quarter eased after a strong rebound in the previous quarter. External demand for goods was sluggish.”

The economic recovery momentum in the second quarter eased after a strong rebound in the previous quarter.

Adolph Leung, Government Economist, HKSAR

He argued that inbound tourism and private consumption will remain the main drivers of economic growth for the rest of the year, with an improving labor market (falling unemployment rate) in the second quarter, and exports of services continuing to grow significantly.

Economists from the private sector, however, are more cautious.

Singaporean-based OCBC Bank forecasts Hong Kong’s economic growth will be hindered by tighter financial conditions and weak external demand.

“In view of the slower-than-expected figure in the second quarter, delayed mainland economic stimulus measures and high interest-rate environment, we revise downward our full year growth forecast to 3.2 percent year-on-year for 2023, with risk tilted to the downside,” OCBC Bank economists Tommy Xie and Cindy Keung said. 

The bank expects exports of services and private consumption to remain the key growth drivers in the second half, while exports of goods might see lower year-on-year decline due to the low base effect.

Lloyd Chan, senior economist at Oxford Economics, anticipates the city’s economic recovery will likely be sluggish.

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“Retail sales growth is already moderating as the reopening boost fades. The goods trade will likely stay subdued as global growth slows. And we think the likely introduction of policy stimulus in the Chinese mainland will not give an imminent boost to Hong Kong's exports,” Chan cautioned.

Source: the Census and Statistics Department, HKSAR Government

“Meanwhile, the city's housing market recovery is slowing and will be hindered by hikes in local banks' prime lending rates. Any hopes of a fiscal response will also likely be disappointed as we believe the government will look to rebuild fiscal buffers this year,” he added.

Based on the Friday figure, the city’s GDP growth in the second quarter was largely due to the 8.2 percent hike in private consumption expenditure and the 22.9 percent surge in exports of services. 

However, exports of goods plunged 15.2 percent, while overall investment spending in terms of gross domestic fixed capital formation declined 0.9 percent amid tighter financial conditions, and government consumption expenditure dipped 9.6 percent in the period.