Hong Kong Fixed Investment (ann. var. %)

Investment in Hong Kong

GDP records quickest upturn since Q4 2021 in the first quarter

GDP expanded 2.7% on an annual basis in Q1 (Q4 2022: -4.1% year on year), far above market expectations. Q1’s reading marked the best result since Q4 2021, and broke a streak of four straight contractions. The removal of border restrictions at home and in mainland China—with an ensuing surge in visitor arrivals—was the key driver behind the improvement. In contrast, merchandise exports remained a weak point amid soft global goods demand.

Household spending increased 12.5% in the first quarter, which was above the fourth quarter’s 1.7% expansion. Public consumption growth, meanwhile, moderated to 0.5% in Q1 (Q4 2022: +9.1% yoy). Meanwhile, fixed investment bounced back, growing 5.8% in Q1, contrasting the 8.9% decrease in the prior quarter.

On the external front, exports of services growth improved to 16.9% year on year in the first quarter, which marked the best reading since Q2 2010 (Q4 2022: +0.6% yoy). In addition, imports of services growth picked up to 20.6% in Q1 (Q4 2022: +1.2% yoy). In contrast, exports and imports of goods continued to decline by double digits.

On a seasonally-adjusted quarter-on-quarter basis, economic activity increased 5.3% in Q1, compared to the previous quarter’s flat reading. Q1’s reading marked the best result since Q1 2021.

The economy should continue its recovery ahead, buoyed by recovering tourism and the government’s supportive fiscal stance.

Nomura analysts were among those who raised their full-year GDP projections in light of the Q1 release:

“The latest Q1 GDP figure suggests Hong Kong will experience a robust recovery in 2023, amid an influx of Mainland Chinese tourists, as we believe Hong Kong is likely to be one of the few frontrunner beneficiaries from China’s outbound tourism revival In the context of much higher-than-expected Q1 growth, the faster-than-expected return of Mainland Chinese tourists, further policy support from the SAR government to boost local consumption, and the stronger-than-expected growth taking place in the Chinese Mainland, we raise our 2023 annual GDP forecast for Hong Kong to 6.0% from 3.8%.”