Hong Kong’s Growth Surge Masks Uneven Recovery, Vaccine Risk

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Hong Kong’s economy posted its fastest growth in more than a decade in the first quarter, though the recovery is an uneven one led mainly by exports and held back by weak consumer spending and a slow vaccine rollout.

After declining for a record six quarters, gross domestic product surged 7.8% from a year earlier, advance data showed Monday, beating all estimates in a Bloomberg survey of economists. The figures were partly distorted by the low base a year ago when the economy was in lockdown, but the quarter-on-quarter expansion, a better reflection of growth momentum, also outperformed.

The latest data show an export sector that’s booming but consumption that remains subdued. The city’s hotels and retail shops are reliant on tourism spending, especially from visitors from the mainland, and border closures have hurt those sectors. Retail sales unexpectedly slowed in March, according to a government report Tuesday.

The city’s ability to reopen and fully rebound from the pandemic will depend on its vaccination rollout, with low participation so far hindering the economy’s outlook.

“Having a high vaccination rate is important to have the border open between Hong Kong and China and also between Hong Kong and other foreign economies,” said Iris Pang, chief economist for Greater China at ING Bank NV. “Without the border open economic activities will only grow slowly.”

Hong Kong has endured its most economically challenging two-year stretch in its history, posting unprecedented back-to-back annual contractions in 2019 and 2020 as the city grappled with waves of political unrest, fallout from the deteriorating U.S.-China relationship, and the Covid-19 pandemic.

The economy has recently showed signs of stronger recovery. Exports surged above HK$400 billion ($51.5 billion) for the first time ever in March while unemployment dropped the most since 2003 in the month, easing back from a 17-year high.

Although retail sales by value gained in February for the first time since 2019, the growth rate unexpectedly slowed to 20.1% in March, according to government data released Tuesday, much lower than the 34% projected by economists. Spending has improved with the relaxation of some social distancing controls, but the near-term outlook remains challenging with tourism in the doldrums, the government said.

The government will announce revised figures for first-quarter GDP as well as its latest projections for full-year growth on May 14. Financial Secretary Paul Chan has previously estimated the economy will expand 3.5% to 5.5% in 2021, but that’s likely to be revised higher now, given the strong growth data.

Citigroup Inc. raised its full-year growth forecast by 2 percentage points to 6%, while Goldman Sachs Group Inc. economists upgraded theirs to 9.2% from 4.6%.

Still, economic activity remains below pre-recession levels as the pandemic and social distancing measures continue to weigh on consumer spending and tourism, the government said in its report Monday. While export demand is set to remain strong, “the revival of tourism-related activities will likely be slow in view of the still austere pandemic situation in many places around the world,” it said.

“Gradual relaxation of social distancing bodes well for domestic activities,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group Ltd. “What’s concerning is the relatively slow vaccination rate and the variant of virus strain. The government will maintain a tough stance in virus control measure.”

©2021 Bloomberg L.P.