Hong Kong Exits Recession As Spending Boom Revives Growth

(Bloomberg) -- Hong Kong emerged from recession in the first quarter as the reopening of its borders revived spending.

The economy expanded 2.7% in the three months to March from a year earlier, topping the median estimate of a 0.5% uptick from 10 economists surveyed by Bloomberg, and the first quarter of growth in more than a year. 

The figure was unexpectedly announced by the city's leader John Lee at his weekly press conference Tuesday morning. The official data is scheduled to be released at 4:30 p.m. local time.

The second quarter will be “much better,” Lee told reporters. 

The city is starting to recover after years of pandemic controls hammered the economy and spurred an exodus of residents. Retail sales by value rose to a three-year high in January as authorities began dismantling border controls between the city and mainland China. 

Visitor arrivals surged to some 2.5 million in March, up 68% from February, with that figure expected to swell this month as a projected hundreds of thousands of mainland Chinese pour across the border during the five-day Labor Day holiday.

The picture is very different from a year ago, when a devastating Covid wave swept through the city and the government tightened curbs further. The economy contracted 3.9% in the first quarter of 2022, setting the bleak tone for the year. 

The reported growth rate “is quite slow when we consider that last year's base effect is negative,” said Iris Pang, chief Greater China economist at ING Group NV. “This signals Hong Kong is not in recession anymore, but it also reflects that the recovery lacks strength.”

While the economy has now returned to growth, the city is still grappling with side effects of its strict pandemic curbs in the past few years. The population has continued to shrink, albeit at a slower pace. On top of that, Hong Kong faces headwinds of slowing world growth and credit tightening overseas.

“On the downside at the moment we're mostly worried about external risks,” Thomas Helbling, the IMF's deputy director for the Asia and Pacific department, said at a briefing in Hong Kong on Tuesday about the organization's economic outlook for the region. 

What Bloomberg Economics Says ...

“A continued comeback in tourism — boosted by the end of Covid Zero in mainland China — is set to drive the recovery forward for the rest of the year. Reflecting the strong 1Q GDP, we're raising our 2023 growth forecast to 5.2%, up from the 3.2% we projected in February. That would more than make up the ground lost in 2022 when GDP shrank 3.5%.”

— Eric Zhu, economist

Read the full report here.

“On the real side, the global economy has been slowing,” he said. Another concern is “further tightening of credit in the United States or in the Euro area, which could then hit Hong Kong through trade channels,” Helbling said. “On the upside, we see some scope for stronger pent-up demand in Hong Kong as well as in China.”

Further details will be released when the government announces advanced economic statistics later Tuesday. Lee has a history of making potentially market-moving announcements during his press briefings, such as ending the city's mask mandate earlier this year and removing pandemic restrictions on tourists.  

--With assistance from Jill Disis.

(Updates to add the figure is year-on-year throughout.)

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