(Bloomberg) --
Hong Kong’s economy slowed to the weakest pace in five quarters on weakened exports and spending, underscoring external and domestic challenges facing the Asian finance hub.
The city’s gross domestic product expanded 1.8% in the three months ended September from the same period last year, according to advance estimates from the government Thursday. That’s lower than estimates by all but one of 13 economists surveyed by Bloomberg News and down from the prior quarter, which was revised down to 3.2% expansion.
The sharp drop meant the economy grew 2.6% in the first nine months, close to the lower end of the official forecast range of 2.5%-3.5% growth.
The data showed private consumption continued to fall in the third quarter while exports growth slowed to 3.9% from 7.5% in the previous period, indicating weakened global demand for Chinese goods routed through the city.
A government spokesman attributed softening exports to sluggish economic growth in major markets. At the same time, global monetary easing and China’s recent stimulus efforts should boost sentiment and activity, he said in a statement.
“A more dovish Fed may help, but the city has more structural issues, including weak confidence and geopolitics,” said Gary Ng, senior economist at Natixis SA. “Any quick recovery will not be likely to happen unless China’s growth picks up significantly.”
Activity contracted 1.1% from the second quarter, compared with expectations for 0.2% expansion.
The data capture the period ahead of Hong Kong Chief Executive John Lee’s announcement of a raft of new measures to shore up the economy and largely before China unveiled its boldest stimulus steps since the pandemic.
Hong Kong’s economy has struggled with a property downturn that’s sapped consumer confidence and spending, while global geopolitical tensions have weighed on commerce in the port city. China’s slowdown has directly hit businesses and tourism in the city, with tourist numbers trailing pre-pandemic levels.
The stagnation has left consumers hesitant to spend. The total value of retail sales has fallen each month since March. Home prices fell in September to the lowest since 2016.
Early signs point to an initial boost from the city’s new housing support measures, with new home sales rising 20% from a year ago in the week following Lee’s policy speech, according to broker Midland Realty. Any gains would be reflected in fourth-quarter GDP figures.
More relief is likely set to come in the form of China’s stimulus and lower interest rates. China announced a set of stimulus measures in recent months including rate cuts, more cash for banks and housing sector support. Officials are meeting next week and expected to unveil details of a crucial fiscal package. In all, these steps may provide a boost for Chinese consumers and investors, who Hong Kong heavily relies on for growth.
The Federal Reserve also kicked off a global easing cycle in September, with additional cuts expected into 2025. Hong Kong’s monetary authority follows the US central bank in lockstep due to a currency peg, and lower borrowing costs may lure more buyers into the market.
“Looking ahead, a rate cut from the Fed will keep domestic fund costs in check — this will help with domestic investment,” said Samuel Tse, economist at DBS Bank, who had the lowest estimate among peers, expecting a 1.1% gain. “Also, a softening Hong Kong dollar will help ease outbound tourism and increase the consumption power of tourists.”
(Updates with details and comments)
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