Hong Kong economy set to grow 6.4 per cent for full year, but coronavirus, supply chain crunch could weigh on recovery

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The worldwide spread of the Delta variant of the coronavirus and global supply chain bottlenecks could weigh on Hong Kong’s recovery, but the local economy was still set to grow 6.4 per cent for the full year, the city’s government said on Friday.

That figure would put growth of the city’s gross domestic product (GDP) at the upper end of the government forecast of between 5.5 per cent and 6.5 per cent, while the prediction for underlying inflation was lowered to 0.7 per cent from 1 per cent.

For the first three quarters of 2021, Hong Kong’s real GDP grew 7 per cent over a year earlier. Photo: Sun Yeung
For the first three quarters of 2021, Hong Kong’s real GDP grew 7 per cent over a year earlier. Photo: Sun Yeung

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Government economist Andrew Au Sik-hung said the full-year GDP projection was still about 2 per cent below that of the level in 2018, the year before anti-government protests and the coronavirus pandemic hammered the economy.

“The global economy has stayed on the recovery track, but momentum has slowed somewhat in recent months amid the surge in Delta variant infections and supply bottlenecks in many places. This may weigh on the performance of Hong Kong’s merchandise exports going forward,” he said.

Au said third-quarter growth of 5.4 per cent year on year was stronger than expected despite falling from the 7.6 per cent recorded in the previous three months, with exports of goods holding up. For the first three quarters of 2021, real GDP grew 7 per cent over a year earlier.

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Hong Kong has kept Covid-19 cases and deaths to a minimum, and while Delta variant infections have been recorded, they are imported cases and have not spread into the community. Much of that success is due to local authorities imposing some of the world’s most stringent restrictions on inbound travellers in a bid to align the city with mainland China’s zero-Covid approach.

“However, as inbound tourism remains virtually at a standstill, this has constrained the pace and extent of economic recovery,” Au said.

The government’s HK$36 billion (US$4.6 billion) consumption voucher scheme has also helped to accelerate local spending, with the city’s borders closed to tourists for more than 20 months.

Au predicted that underlying inflation would “remain in check for the rest of this year” despite rising import costs.

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While local inflationary pressures were expected to ease, the surge in energy prices and inflationary pressures in the United States and Europe had added uncertainties to the general outlook, he added.

Iris Pang, ING Bank Greater China economist, said the government’s revised forecast was within expectations, adding that inflationary risks were mainly felt in the US and Europe but had not hit the Asia-Pacific region as dramatically.

“Year-on-year inflation is very high in the US and Europe partly because of the very low base last year,” Pang said, referring to the decline in demand for goods as economies contracted amid the pandemic.

“Asia is a little bit different because we got out of the pandemic slightly earlier and supply chain worries aren’t as concerning,” she said.

Although rising vegetable, meat and fuel prices were beginning to be felt in October, Pang said the increases were seasonal fluctuations.

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