Hong Kong’s gross domestic product fell by 4.5 per cent in the third quarter after accounting for inflation, the city’s financial chief has said. The government is also expected to see a deficit of over HK$100 billion, “far higher” than its earlier estimation.
Finance Secretary Paul Chan said Hong Kong’s economy “again worsened” in the third quarter of 2022 during a panel meeting at the Legislative Council on Monday.
According to Chan, Hong Kong’s outgoing freight dropped by 15.6 per cent from July to September when compared with the same period last year, whereas the export of services also saw a 3.8 per cent decrease.
“With the external circumstances further deteriorating, and the continuous disruption in land cargo transport at the border with the mainland, Hong Kong’s export has been heavily hit,” Chan said. Tourism was still “far lower than pre-Covid-19 levels,” Chan said, despite “significant growth” in arrivals since quarantine and testing measures were relaxed.
In October, Hong Kong saw 97.7 per cent fewer arrivals than in October 2019. The city still enforces a group gathering limit of 12 in public, makes mask wearing compulsory, and requires tracing apps to enter certain premises such as restaurants.
Meanwhile, the finance secretary said people’s consumption expenditure remained “mostly unchanged” in the third quarter this year when compared with the same period in 2021 due to the consumption voucher scheme, but overall investment spending saw a 14.3 per cent decline.
Chan added that the government expected to see a deficit of over HK$100 billion, “far higher than the estimated HK$56.3 billion in the Budget.”
According to the financial chief, the government’s income has been lower than expected but it had to sustain “substantially large” expenditures from anti-epidemic measures and the Covid-19 employment support scheme.
As a result, Chan estimated that Hong Kong’s fiscal reserves had declined to around HK$800 billion, an amount equivalent to 11 months of government expenditure. In January this year, fiscal reserves stood at just over HK$1 trillion.
Stable employment and inflation
Hong Kong’s labour market has seen improvements in recent months, with unemployment falling from a peak of 5.4 per cent between February and April to 3.8 per cent from August to October, the finance secretary said.
Chan added that the estimated inflation rate for 2022 will be at 1.8 per cent. “Overall, the inflation will remain mild in the short term,” he said, but prices were expected to rise gradually next year.
The financial chief also reported that housing prices had dropped by 8 per cent from June to October.
The number of monthly transactions in the housing market was around 3,500 between July and October, according to Chan. Between 2017 and 2021, Hong Kong recorded around 5,200 monthly housing transactions.
No ‘risky signals’ in dollar peg
During the panel meeting, lawmaker Louis Loong said overseas “predatory-investors” often speculated whenever Hong Kong’s fiscal situation was experiencing a downturn.
“Some openly bet against Hong Kong dollars, some said the pegged exchange rate… will eventually change,” the legislator said, adding that members of the public might be concerned about the Hong Kong dollar’s peg to US currency.
In response, Chan said that history has shown that many who betted against Hong Kong’s dollar peg have “suffered a major defeat.”
The financial secretary added that the government has not noticed any “risky signals” or different hedge funds acting together to bring down Hong Kong’s currency.
“We are capable of defending [the dollar peg.]” Chan said. “We also have the full support from the nation, and no need to review or make changes to the linked exchange rate system.”