Hong Kong has been scourged by COVID-19 for nearly two years, but the situation currently remains uncertain. Will the local economy likely recover in the coming year?

Hong Kong has clocked 7% YoY GDP growth in the previous three quarters. Annual economic growth is approximately 6.5%. Wang Chunxin, Head of Hong Kong Economic and Policy Research Division, Bank of China (Hong Kong), says Hong Kong’s economy saw partial recovery in 2021.

Hong Kong’s economic recovery will gain traction

Wang points out that Hong Kong’s economic performance remained stable in the third quarter. Annual economic growth was about 6.5%, although economic aggregate was down 2% from 2018. Commodity trade was strong in the first 10 months of the year, whereas service trade was sluggish and continued to lag behind commodities.

He also indicates that unemployment has spiraled during the pandemic. As at the end of February, the actual unemployment figure in Hong Kong was 261,600, more than doubled as compared to 124,000 recorded at the end of 2019. As the COVID situation came under control over time, unemployment in Hong Kong trended down to 4.3% in October, although such level was 1.5% below the norm.

Stable transition for China’s national economy

Wang’s projection for the national economy is that the growth trend will continue in 2022, while introduction of the energy consumption and intensity dual control system as well as industry regulation and steady growth policies may seen minor adjustments. Given that the pandemic is largely under control and economic and social activities are recovering, the economy is well supported. Mainland exports have been benefiting from the global economic recovery. As western countries are launching large-scale stimulus packages and production is frustrated by the pandemic in some regions, there are increasing demands for Mainland products.

Moreover, he says there is ample space for the Mainland to mull steady growth policy measures. To achieve steady growth, the monetary policy will underline flexibility and accuracy. While supporting the real economy remains a major goal, the monetary policy will also aim at achieving steady growth, bolstering employment and avoiding risks. He expects the fiscal policy to play an increasingly important role in 2022 to promote steady growth of credits as well as infrastructure and other investments. This will ensure a stable transition and normalization of China’s economy.

Global market outlook warrants caution as US prospects remain unclear

Wang says FED tightening expectations may be dampened as the sustained rebound of US employment coincides with the emergence of yet another new COVID variant. However, the passing of the USD1.75 trillion social spending bill will continue to channel growth momentum to the US economy. Having said that, he stresses that the pandemic promises to be a bumpy ride while factors like tense Sino- US relations and risks related to high debt level will inflame the situation. There may be uncertainties in the outlook of the US economy.

From a global perspective, Wang says the impacts of COVID are still present in 2022 and their effects on global economic recovery wait to be seen. On the inflation front, Wang opines that if inflation remains high in developed economies in the coming months, the FED will no longer think that inflation pressures are temporary and adjust the tapering and rate hike timetable and pace accordingly. Financial markets could see a new round of volatility. We should stay highly vigilant to related external risks.