HONG KONG (Reuters) – Hong Kong’s economy contracted 4.5% in the third quarter from a year earlier, advance government data showed on Friday, weighed down by rising global interest rates and a slump in trade.
It was the third consecutive quarter of year-on-year contraction for the Asian financial hub’s gross domestic product (GDP), and marked the worst contraction since the second quarter of 2020.
The decline widened from 1.3% in the second quarter. The government also revised down its full-year growth forecast to minus 3.2%, from between 0.5% and minus 0.5%, citing a deteriorating global growth outlook.
“Looking forward, the markedly deteriorating external environment will continue to pose immense pressure on Hong Kong’s export performance,” a government spokesman said in a statement, adding that geopolitical tensions and uncertainties over COVID-19 will add downside risks.
“The relaxed testing and quarantine arrangements for incoming visitors should provide some support to exports of services,” the spokesman said.
On a quarterly basis, the economy contracted by a seasonally adjusted 2.6% in the July-September period.
While Hong Kong has relaxed social distancing measures put in place to curb COVID-19 infections, the border with mainland China has been largely closed since early 2020, choking off mainland tourism spending, a key driver of consumer growth.
The city is also facing headwinds from high inflationary pressure and aggressive monetary tightening in advanced economies.
Cases of negative equity in Hong Kong’s residential mortgage loans registered a near nine-fold increase in the third quarter from the previous one, with a fall in house prices accelerating during the period.
“(Hong Kong) economic outlook remains cloudy on all fronts if the border remains partially opened in the fourth quarter,” said Samuel Tse, an economist at DBS Bank.
External trade will continue to face pressure, he added.
In September, the volume of Hong Kong’s total exports of goods decreased by 15.3% from a year ago, with total export volume to the United States recording a year-on-year decline of 30.7%, and down 16.2% to the mainland China.
Writing in a blog post on Sunday, Financial Secretary Paul Chan said the economic outlook was “hardly optimistic”, but added the momentum of economic recovery would gradually strengthen if the city’s COVID situation remained under control and external activities resumed.
(Reporting by Twinnie Siu and Donny Kwok; Editing by Angus MacSwan)