The government will officially announce Hong Kong's revised second-quarter gross product (GDP) data next Friday (August 16). Previously on July 31, preliminary data had been released, showing that the economy grew by 3.3%, far exceeding market expectations of 2.7%. Although JPMorgan Chase, Nomura Securities and Dah Sing Bank have all raised their economic forecasts for the whole year, Citibank has significantly lowered its economic growth forecast for the fourth quarter.

Citi lowered Hong Kong's final quarter economic forecast, with full-year GDP growth expected to be only 2.9%

Recently, Citigroup has significantly lowered its fourth-quarter growth forecast for Hong Kong's economy, from the original 3.9% to 2.9%. This adjustment has caused great concern in the market about whether the upper limit of the Hong Kong government's annual GDP growth target of 3.5% can be achieved.

Liao Jiahao, head of investment strategy and asset allocation at Citibank, explained that the main concerns of Citi analysts are the challenges facing the retail market and the sustainability of the investment recovery. The weak consumer market may offset some of the positive effects on the economy due to strong net exports.

Second quarter economic performance and agency forecasts

According to preliminary data released by the Hong Kong government, the gross domestic product (GDP) grew by 3.3% year-on-year in the second quarter of this year, which is much higher than previous market expectations. The predictions of major institutions are as follows:

University of Hong Kong: 2%Citi: raised from 2.2% to 3.3%OCBC Bank: 6%Shanghai Business Research Department: Reduced from 3.7% to 3.3

Economic Outlook for the Third Quarter

In the third quarter, various institutions’ forecasts for Hong Kong’s economic growth are relatively scattered:

Shangshang: increased from 1% to 2.2%University of Hong Kong: 2.3%OCBC Bank: 5%Citi: lowered from 3.2% to 3%Nomura: 5%

Fourth quarter expectations

For the fourth quarter, OCBC and Citi both lowered their growth forecasts:

OCBC Bank: 4%Shang Shang: increased from 2.5% to 2.8%Citi: lowered from 3.9% to 2.9%

This year’s full-year growth

HKU and overseas Chinese: 3%Shang Shang: 4%Hang Seng: 8%Citi: Maintain 3%CNCBI: Maintain about 3%JPMorgan: raised from 2.8% to 3%Daxin: raised from 3.1% to 3.2%Nomura: raised from 2.7% to 3.3%Budget estimate: between 2.5% and 3.5%

Next year forecast

Overseas Chinese: 2%Shang Shang: 9%Citi: Maintain 3.2%

Analysis of factors affecting Hong Kong’s economy

Recent analysis points out that the main favorable factors affecting Hong Kong’s economic recovery include the following three points:

Event economy: Stimulate the recovery of tourism industry to levels close to pre-epidemic levels.

Export rebound: Export growth accelerated, driving economic growth.

Expected interest rate cuts: The market is optimistic that the Federal Reserve will begin to significantly cut interest rates in September, which will help the economic recovery.

However, the six major drag factors facing Hong Kong’s economy cannot be ignored:

The consumption boom of Hong Kong people heading north has led to a decline in local consumption.

Tourist consumption is sluggish: Although the number of tourists has increased, consumption has not increased significantly.

Weak property and stock markets: Even as the government relaxed real estate policies, the market response remained lukewarm.

Mainland China’s economic growth slowed: Second-quarter growth was much lower than expected.

The Sino-US trade war: continues to have a negative impact on Hong Kong’s economy.

Geopolitical tensions: may further escalate and increase economic uncertainty.

Full-year expectations and future outlook

Hong Kong Financial Secretary Paul Chan Mo-po stressed that despite the challenges, Hong Kong's overall economic conditions have maintained steady growth. In the second quarter, exports of goods increased by 7.6% year-on-year, and investment expenditure increased by 6%, resulting in GDP growth of 3.3% year-on-year. However, changes in consumption patterns and the strong Hong Kong dollar exchange rate have put pressure on private consumption.

Wen Jiawei, chief economist and strategist of Dah Sing Financial Group, said that GDP growth in the second quarter was 3.3%, higher than market expectations, mainly due to accelerated exports, a rebound in government consumer spending, and growth in local investment. These factors offset weaker private consumption and slower services exports.

The decline in the growth rate of service exports may reflect the slowdown in the growth rate of tourists visiting Hong Kong and changes in tourist consumption patterns; the growth of service imports still maintains double digits, which may indicate that local residents still have strong desire to travel abroad and go northward for consumption, which is detrimental to local consumption. As for the acceleration of investment, it may be partly due to the weak performance of private investment in the same period last year, as well as the significant increase in transaction volume after the property market "reduced its splendor".

Looking ahead, the Federal Reserve is widely expected to begin cutting interest rates in the second half of the year, which may help growth in external demand and business investment. However, weak local consumption, changes in the consumption patterns of tourists visiting Hong Kong, and the continued enthusiasm of Hong Kong people for traveling abroad and heading north for consumption will make it difficult to change the "new normal" of services trade deficit. In the coming months, mainland and external economic dynamics, Sino-US trade relations, etc. will have a key impact on Hong Kong's economic performance. As the government raised its first-quarter growth figures, Dah Sing also slightly raised its economic growth forecast for this year by 0.1 percentage points to 3.2%. Chief Executive Lee Ka-chiu also announced that he will focus on supporting economic development in his policy address in October.