Economic conditions in H1 weakest in a decade: government economist

Real GDP is expected to grow by a dismal 0-1% by the end of the year.

The economic conditions during the first half of the year were the weakest since the recession hit in 2009 as external demand weakened due to trade tensions and ongoing mass protests, according to government economist Andrew Au.

Revised figures from the Census and Statistics Department (C&SD) revealed that second quarter’s Gross Domestic Product (GDP) contracted 0.4% in a quarterly basis, down from the 0.3% QoQ decline released earlier this month.

On a yearly basis, GDP increased moderately by 0.5% YoY, down from an earlier forecast of 0.6% YoY. Au commented that this was “much worse-than-expected.”

“Taking into account the much worse-than-expected actual outturn of 0.5% YoY growth in the first half of 2019, and considering the substantial downside risks, the real GDP growth forecast for the year as a whole is revised downwards from 2-3% in the May round of review to 0-1% in the current round,” he said.

Meanwhile, domestic demand remained sluggish as subdued economic conditions and various headwinds weighed on local economic sentiment. Private consumption only grew a modest 1.1% YoY as consumer sentiment stayed cautious. Overall investment expenditure diminished by 11.6% YoY, reflecting continued contraction in building and construction activities and worsening business sentiment.

Also read: Year-end retail sales may fall by up to 8.1% as protests ravage Hong Kong

Underlying consumer price inflation also went up to 2.9% YoY in Q2, driven by surging pork prices caused by disruptions to the supply of fresh pork in May and June. However, overall price pressures is expected to remain contained for the rest of the year.

Also read: Inflation up 2.9% in April

“Looking forward, global economic growth should soften further in the near term. US-Mainland trade tensions have escalated further in August, as the US announced to impose a 10% additional tariff on the remaining $2.35t worth of Mainland products and designated the Mainland as a currency manipulator,” noted Au.

“Many major central banks have lowered interest rates or shifted to a more accommodative monetary stance, but these measures are unlikely to completely offset the impacts of various headwinds. As such, Hong Kong's export performance should remain sluggish or even weaken further in the months to come,” he added.