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

Economic situation in second quarter of 2020


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August 14, 2020 -The Hong Kong Special Administrative Region Government released today the Half-yearly Economic Report 2020, together with the revised figures on Gross Domestic Product (GDP) for the second quarter of 2020.

The Government Economist, Mr Andrew Au, described the economic situation in the second quarter of 2020 and the latest GDP and price forecasts for 2020.

The Hong Kong economy remained very weak in the second quarter of 2020, as the COVID-19 pandemic continued to deal heavy blows to global and local economic activities. Real GDP fell notably by 9.0% year-on-year in the second quarter, following the record decline of 9.1% in the preceding quarter. Yet, the economy showed signs of stabilization along with the abated local epidemic situation in the latter half of the quarter. The rebound of the Mainland economy also helped offset part of the downward pressures on exports of goods. On a seasonally adjusted quarter-to-quarter comparison, real GDP fell marginally by 0.1% in the second quarter, having plunged by a record 5.5% in the preceding quarter.

Total exports of goods saw a visibly narrower year-on-year decline of 2.4% in real terms in the second quarter despite the global recession, mainly reflecting the swift resumption of production and other economic activities in the Mainland. Exports of services plunged further by a record 46.1% year-on-year in real terms, as inbound tourism was frozen by widespread travel restrictions, and as cross-boundary transport and commercial services plummeted.

Domestic demand took a big hit. Private consumption expenditure recorded the steepest ever year-on-year decline of 14.2% in real terms in the second quarter, as local consumption activities were severely disrupted by the threat of COVID-19 and social distancing requirements throughout the quarter, and outbound tourism came to a halt amid stringent travel restrictions. The sharp deterioration of labour market conditions also weighed on consumer sentiment. Overall investment expenditure continued to tumble by 21.4% year-on-year in real terms amid negative business environment and subdued private construction activity.

The labor market continued to deteriorate in the second quarter. The seasonally adjusted unemployment rate surged to 6.2%, the highest in more than 15 years. The underemployment rate also rose visibly to 3.7%, the highest in close to 17 years. Total employment fell markedly from a year earlier. Nonetheless, signs of stabilization emerged towards the end of the quarter thanks to the abated local epidemic situation in May and June. The Employment Support Scheme also provided cushion. 

The local stock market stabilized in the second quarter. Market sentiment improved thanks to the gradual easing of epidemic situation in some advanced economies in May and June and the massive economic support measures rolled out by governments and central banks around the world. The residential property market turned active, with trading activities picking up notably from a very low level in the preceding quarter and flat prices rising moderately during the quarter.

While the worst seems to be over in many major economies, and central banks and governments around the world have implemented massive support measures, the recovery of the global economy will likely be uneven and bumpy. The threat of COVID-19 will continue to cloud the global economic outlook until an effective vaccine or treatment is widely available. The tense China-US relations and heightened geopolitical tensions also fuel uncertainties. On the bright side, the Mainland economy has returned to solid growth, and should render some support to Hong Kong's export performance amid a difficult external environment. Yet, it is hard for inbound tourism to recover during the rest of the year given the evolving pandemic and widespread travel restrictions in place.

Locally, the outlook for domestic demand will hinge on the local epidemic situation. The recent surge of COVID-19 infections and the resultant tightening of social distancing measures, and austere labor market conditions will heavily weigh on private consumption in the coming weeks. The strength and speed of any recovery will depend much on how fast local infection can be brought under control. This will also be a key factor affecting business sentiment and thus fixed asset investment.

Hong Kong’s short-term economic outlook is still highly uncertain. Considering the actual outturn in the first half of the year, and the difficult and uncertain economic environment in the second half, but also the cushioning effects of the Government's massive relief measures, the real GDP growth forecast for 2020 as a whole is revised downwards to -6% to -8% in the current round of review, from -4% to -7% as announced in late April. If the current wave of local infection can be contained within a short time and barring any further sharp deterioration in the external environment, economic performance for 2020 as a whole can hopefully fall within the upper half of the range forecast. The Government will continue to closely monitor the situation and roll out measures as necessary to maintain the vitality of the economy and pave the way for a speedy recovery once the threat of the pandemic recedes.

Underlying consumer price inflation went visibly lower from 2.9% in the first quarter to 1.8% in the second quarter, thanks to moderated food inflation and abating price pressures on many other consumption items. With the impact of the surge in pork prices since May last year having largely dissipated, inflationary pressures will likely ease further in the rest of the year amid subdued economic conditions. Taking into account the actual outturn in the first half of the year and the impending waiver of one-month public housing rentals in September, the forecast rates of underlying and headline inflation rates for 2020 as a whole are revised downwards to 1.8% and 0.8% respectively, from 2.2% and 1.4% in the May round of review.

The Half-yearly Economic Report 2020 is now available for online download, free of charge at [www.hkeconomy.gov.hk/en/situation/index.htm]. The Report of the Gross Domestic Product, Second Quarter 2020, which contains the GDP figures up to the second quarter of 2020, is also available for online download, free of charge at the homepage of the Census and Statistics Department at [www.censtatd.gov.hk].

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