All is “not rosy” despite higher-than-expected economic growth

The 7.8% YOY GDP growth was above the 3.7% Bloomberg estimate, but it will take more than that to return Hong Kong to more prosperous times.

Hong Kong’s gross domestic product (GDP) in the first quarter grew stronger than expected by 7.8% year-on-year after six quarters of contraction, but UOB its “outlook is not rosy as yet.”

The GDP growth during the quarter rebounded from the 2.8% decrease in the preceding quarter and 9% contraction in the same quarter last year.

This was attributed to the strong growth in external trade as well as the low base of comparison last year.

Read also: Economy rebounds 7.8% after six quarters of contraction

“Without a meaningful rebound in private consumption and the services sector, the economic recovery was uneven despite the stronger-than-expected headline growth in 1Q21,” UOB said in its Macro Note.

Private consumption accounted for 65% of the GDP, reflecting a modest growth of 1.6% YoY. This was linked to the continued impact of the pandemic on tourism as well as the fourth wave of outbreak in late November last year.

It added that the resurgence of COVID-19 infections in other countries will hold back the reopening of Hong Kong’s border and further affect the City’s tourism sector.

In addition, vaccine rollout is still slow as the vaccination rate stood at 8.2% of the population as of 2 May. On this note, UOB raised the resumption of travel between Hong Kong and Mainland China will be crucial.

The Hong Kong government has taken steps to reopen its border to China through the Return2HK and Come2HK travel schemes that will allow HK residents and non-residents, respectively, to travel to the City without undergoing the 14-day quarantine requirement.

Moreover, UOB expects the Q1 GDP will lead to an upward revision to the government’s February forecast of 3.5-5.5% for 2021. Likewise, UOB expects it will revise up their 2021 growth forecast, currently at 5%.