Hong Kong Economic and Trade Office, USA
Hong Kong
News Release


Economic situation in third quarter of 2019 and latest GDP and price forecasts for 2019

 



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Melissa Ng in New York City: (212) 752 3320
Wing Yan Tong in San Francisco: (415) 835 9315
Daniel McAtee in Washington, D.C.: (202) 238 6360

 




November 15, 2019 - The Hong Kong Special Administrative Region Government released today the Third Quarter Economic Report 2019, together with the revised figures on Gross Domestic Product (GDP) for the third quarter of 2019.

The Government Economist, Mr Andrew Au, described the economic situation in the third quarter of 2019 and provided the latest GDP and price forecasts for 2019 as a whole.

Main points

- The Hong Kong economy saw an abrupt deterioration in the third quarter of 2019, as the local social incidents dealt a very severe blow to an economy already weakened by a synchronised global economic slowdown and US-Mainland trade tensions. After growing mildly by 0.4% in the second quarter, the economy contracted by 2.9% in the third quarter from a year earlier, marking its first year-on-year decline since the Great Recession of 2009. On a seasonally adjusted quarter-to-quarter comparison, real GDP contracted significantly by 3.2% in the third quarter after a 0.5% decline in the preceding quarter, indicating that the economy has entered a recession. 

- Total exports of goods registered an enlarged year-on-year decline of 7.1% in real terms in the third quarter, due to slackening global demand and escalated US-Mainland trade tensions. Exports of services deteriorated sharply and plunged by 13.8%, the biggest year-on-year fall since the second quarter of 2003, as inbound tourism suffered severely from the local social incidents with increasing violence. Other services exports also fell by varying degrees amid a more austere external environment and shrinking trade flows.

- Domestic demand worsened significantly in the third quarter, as the local social incidents took a heavy toll on consumption-related activities and subdued economic prospects weighed on consumption and investment sentiment. Private consumption expenditure weakened sharply to fall by 3.4% in real terms, its first year-on-year decline in more than 10 years. The decline in overall investment expenditure steepened to 16.3%. Machinery and equipment acquisition plunged amid very pessimistic business sentiment, while building and construction activities fell further.

- The labor market showed some easing as economic conditions worsened, with the seasonally adjusted unemployment rate edging up to 2.9% in the third quarter. The consumption-related sectors witnessed more visible increases in unemployment rates. Overall earnings growth also moderated.

- The local stock market underwent a sharp correction during the third quarter. The residential property market likewise softened somewhat. With most buyers turning more cautious and sellers generally adopting softer stances in price negotiations, flat prices fell by 3% during the quarter amid thinner trading.

- Looking ahead, the difficult external environment is likely to persist in the near term. Recent economic data point to the continuation of a synchronized growth slowdown in the major economies. Yet, US-Mainland trade tensions have eased somewhat of late, as negotiations are underway for sealing a first-phase trade agreement. While trade relations may tend to stabilize for the time being, uncertainties remain given that differences in some key issues have yet to be resolved. The evolving situation of Brexit and geopolitical risks in the Middle East also warrant attention. Many central banks have taken steps to ease monetary policy, but these steps are probably not enough to reverse the trend of decelerating global growth in the rest of the year. As such, Hong Kong's export performance is likely to remain weak in the near term.

- The local social incidents with intensifying violence in the past few months have kept visitors away, taken a heavy toll on local consumption demand, and seriously dampened economic sentiment. Latest surveys on both large enterprises and small-and-medium-sized enterprises all indicated that business sentiment has turned very pessimistic. As the impacts of the local social incidents have yet to show signs of abating, consumption and investment demand will likely remain in the doldrums for the rest of the year.

- Considering the actual outturn of a 0.6% contraction in the first three quarters of 2019 and the persistent notable downward pressures, the real GDP growth forecast for the year as a whole is revised downwards from 0 to 1% as announced in the August round of review to -1.3% in the current round. This would be the first annual decline since 2009. Ending violence and restoring calm are pivotal to the recovery of the economy. The Government will continue to closely monitor the situation and introduce measures as necessary to support enterprises and safeguard jobs.

- Underlying consumer price inflation went up from 2.9% in the second quarter to 3.3% in the third quarter, mainly because of a faster increase in pork prices amid the reduced supply of fresh pork. Price pressures on other major consumer price index components stayed largely moderate. Looking forward, modest global inflation and subdued economic conditions should help contain overall inflation in the rest of 2019. Yet, considering that inflation may stay somewhat elevated in the near term given the supply situation of fresh pork, the forecast of underlying consumer price inflation for 2019 as a whole is revised upwards from 2.7% in the August round of review to 3.0% in the current round. The forecast of headline consumer price inflation for 2019 as a whole is also revised upwards, from 2.6% to 2.9%.

Latest GDP and price forecasts for 2019
Looking ahead, the difficult external environment is likely to persist in the near term. Recent economic data point to the continuation of a synchronized growth slowdown in the major economies. Yet, US-Mainland trade tensions have eased somewhat of late, as negotiations are underway for sealing a first-phase trade agreement. While trade relations may tend to stabilize for the time being, uncertainties remain given that differences in some key issues have yet to be resolved. The evolving situation of Brexit and geopolitical risks in the Middle East also warrant attention. Many central banks have taken steps to ease monetary policy, but these steps are probably not enough to reverse the trend of decelerating global growth in the rest of the year. As such, Hong Kong’s export performance is likely to remain weak in the near term.

The local social incidents with intensifying violence in the past few months have kept visitors away, taken a heavy toll on local consumption demand, and seriously dampened economic sentiment. Latest surveys on both large enterprises and small-and-medium-sized enterprises all indicated that business sentiment has turned very pessimistic. As the impacts of the local social incidents have yet to show signs of abating, consumption and investment demand will likely remain in the doldrums for the rest of the year.

Considering the actual outturn of a 0.6% contraction in the first three quarters of 2019 and the persistent notable downward pressures, the real GDP growth forecast for the year as a whole is revised downwards from 0 to 1% as announced in the August round of review to -1.3% in the current round (Table 2). This would be the first annual decline since 2009. Ending violence and restoring calm are pivotal to the recovery of the economy. The Government will continue to closely monitor the situation and introduce measures as necessary to support enterprises and safeguard jobs. For reference, the latest forecasts by private sector analysts range from -2.1% to 0.7%, averaging around -0.7%.

On the inflation outlook, modest global inflation and subdued economic conditions should help contain overall inflation in the rest of 2019. Yet, considering that inflation may stay somewhat elevated in the near term given the supply situation of fresh pork, the forecast of underlying consumer price inflation for 2019 as a whole is revised upwards from 2.7% in the August round of review to 3.0% in the current round (Table 2). The forecast of headline consumer price inflation for 2019 as a whole is also revised upwards, from 2.6% to 2.9%.

 

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