Hong Kong GDP to shrink by 4.0% YoY in Q122: estimates

This will mark the first contraction since Q4 2020.

Advance data showed that Hong Kong's GDP will shrink by 4.0% YoY in Q1 2022, marking its first contraction since Q4 2020.

According to UOB, all major expenditure components will contract in Q1 2022 except for government consumption which is expected to increase by 5.9% YoY.

The gross domestic fixed capital formation is expected to post the biggest decline of 8.3% YoY, followed by private consumption
expenditure (-5.4% YoY), exports of goods (-4.5% YoY), and exports of services (-2.8% YoY).  

Given the expected drop in GDP and the " larger than expected impact from the COVID-19 pandemic outbreak," UOB has downgraded its growth forecast for 2022 to 1.3% from 1.7%.

Looking ahead, UOB sees a recovery in private consumption as the city recovers from the impact of the fifth wave.

The recovery will also likely be supported by "pent-up demand and government’s consumption
vouchers which began distribution for the first phase in early April," UOB said.

"The HK$10,000 digital consumption vouchers announced in Budget 2022/23 are projected to boost the Hong Kong economy by a 1.2% point compared to a smaller boost of 0.7% point estimated for the HK$5,000 consumption vouchers in 2021," the analyst added.

UOB, however, warned that the city's economy will still be "weighed by significant uncertainties ahead."

"Its dynamic zero-COVID approach meant that there are persistent risks that the COVID-19 curbs will be re-tightened (especially with ongoing outbreaks in the mainland) and little prospects that Hong Kong could benefit from tourism
recovery as other countries reopen their borders," UOB said.

"Other risks pertain to high commodity prices that are exacerbated by the Russia-Ukraine conflicts, slowdown in the mainland’s economy and rising domestic interest rates in line with US Fed’s monetary policy tightening," the analyst added.