After a near-certain contraction last year for the third time since 2019, Hong Kong’s economy is coming back stronger this year and may even grow faster than rival financial hub Singapore for the first time in more than a decade.
Economists are upgrading their forecasts for Hong Kong this year as the city accelerates its reopening with mainland China and the rest of the world. The median estimate in a Bloomberg survey of 12 economists last week was 3.3% growth for 2023, higher than the 2.7% forecast in a survey of 25 economists in November.
Analysts are becoming more optimistic as Hong Kong sheds its remaining Covid curbs and rolls out a plan to allow people to more freely cross the mainland border again. Mainland China on Sunday ended quarantine for arrivals, making cross-border travel a reality again for many people.
An influx of arrivals would be good news for the city and start to revive businesses that have been hurt by the closure, from hotel and catering companies to investment and wealth management firms.
The mainland border reopening has been cautious so far. with officials implementing a 60,000-person cap per day. But the gradual pace of recovery may give way to a stronger showing in the final six months of the year.
“We see Hong Kong turning the corner, but the real effects are likely to be seen only in the second half of 2023,” said Heron Lim, an economist at Moody’s Analytics. He expected Hong Kong’s GDP to expand 3.8% this year, compared to a November estimate of 3.2%. Lim sees quarterly growth reaching 7.7% in the October-to-December period.
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Hong Kong needs a win: Officials have said they think GDP shrank 3.2% last year as the city was slow to emerge from its pandemic isolation and as global headwinds including high interest rates and waning demand took a toll. Singapore — which has been trying to gain an edge over its Chinese competitor for top talent and business — was much quicker to shed its Covid controls and its economy expanded 3.8% in 2022.
Growth in trade-reliant Singapore is projected to level off this year as the US and Europe head for likely recessions, with the most recent estimate in a Bloomberg survey showing the city state will expand 2%. If Hong Kong grows at a faster pace than that, it would surpass Singapore for the first time since 2008.
Economists who participated in the most recent Hong Kong survey expect the city to turn to fiscal support and other measures to shore up growth this year.
Three respondents said they thought officials will issue more consumption vouchers worth HKD$5,000 ($640) per person to spur spending, while seven said either personal or corporate tax cuts could be on the table. Respondents were allowed to select more than one option.
Growth Rebound | Hong Kong's growth is seen to overtake Singapore in 2023 amid reopening
While Lim of Moody’s said the government will likely unveil a smaller fiscal support package this year than it did in 2022, he added that “it will remain expansionary as the authorities seek to jump-start the flailing economy.”
Even as Hong Kong reopens — to China and the rest of the world — it’s problems aren’t easily fixable. The years of isolation cost Hong Kong’s economy an estimated $27 billion in potential growth, according to an analysis by Natixis SA.
The city’s property market — the world’s least affordable — is also under strain as interest rates rise and housing demand slides. Economists polled in the most recent Bloomberg survey said they expected the city’s prime rates to increase this year.
Global headwinds including weak demand and an impending worldwide recession are adding to the city’s woes.
“China’s reopening is helpful, but it will not solve all problems Hong Kong has right now,” said Gary Ng, senior economist at Natixis SA. He projected growth of 3% for this year, slightly below the median estimate.
“As higher interest rates and global slowdown kick in 2023, the city’s economic prospect is only cautiously optimistic with short-term pressure.”
