Hong Kong’s economy grew at a slower pace than analysts expected last quarter, with the rollout of spending vouchers to residents not enough to keep growth momentum going.
Gross domestic product rose 5.4% in the third quarter from a year earlier, a government report showed Monday, lower than the 5.7% median estimate in a Bloomberg survey of economists. Growth slowed from 7.6% in the second quarter as favorable base effects faded. On a quarter-on-quarter basis, GDP rose 0.1%.
The economy faces increasing challenges as the city sticks with a Covid zero strategy that’s largely kept borders shut and raised questions about its future as a global financial hub. Growth is set to slow further into next year without an easing of severe border restrictions that have choked off travel and tourism.
The consumption vouchers provided some respite last quarter. The first instalment of the HK$5,000 ($643) payouts helped to boost retail sales growth to 11.9% in August, with a second payment likely to underpin spending in the fourth quarter.
Financial Secretary Paul Chan said on the weekend he expects GDP growth for the year to come in closer to the upper end of the 5.5%-6.5% target range, citing an improvement in employment and the consumer voucher program.
The city’s longer-term economic health though will depend on how long the government sticks to one of the world’s strictest Covid-19 containment regimes. Hong Kong Chief Executive Carrie Lam has repeatedly stressed the priority is reopening the border with mainland China, with the city last week tightening quarantine rules further in hopes of easier cross-border travel.
Foreign business leaders, including the American and European chambers of commerce, have expressed increasing frustration with the lack of progress on loosening quarantine rules that have severely curtailed overseas travel. The number of U.S. businesses with regional headquarters in Hong Kong has slumped to an 18-year low, according to latest official data.
“A global financial hub is a hugely open economy by definition so it can only suffer with closed borders,” Alicia Garcia Herrero, chief Asia Pacific economist with Natixis SA, said before the GDP release.
Three main challenges to the strength of Hong Kong’s economy next year include a recent outflow of residents reducing the labor supply, lack of international visitors and China’s economic slowdown, she said.