Hong Kong's economy continued to contract by 4.2% in the fourth quarter from a year earlier, according to advance data released by the government last Thursday. Hong Kong's economy was shrinking for the fourth consecutive quarter as exports were hampered.

Economists from Morgan Stanley, DBS, Hang Seng Bank, and Natixis predict Hong Kong's GDP to contract between 2.8% to 3.1%. The Hong Kong economy is indeed hampered by global demand and higher interest rates in terms of exports and spending from the Hong Kong.

On one seasonally adjusted quarterly basis, the economy also remained virtually economy unchanged in the October to December period. Many also associate this with Hong Kong as an Asian financial hub but battered by its pandemic measures and China's policy.

Spillover from China's zero Covid policy increased consumer spending on mainland compared to Hong Kong's conditions. However, this could be a turning point for Hong Kong because China is starting to rebound in travel and is expected to help the economy this year.

Weak External Demand Throughout 2022 Makes Hong Kong's Economy Continue to Contraction

Hong Kong faces risks from high inflationary pressure and aggressive monetary tightening in an advanced economy. Your higher borrowing cost and the pessimistic economic outlook cause this the most, especially because Hong Kong prioritizes international competition.

Hong Kong is trying very hard to increase international competitiveness despite the restrictions that still exist, apart from wearing masks. However, after looking at Hong Kong's current condition, weak external demand could be the cause.

The advance figure shown and released on Thursday shows that it is mainly attributable to the weak performance in external trade during the quarter. The economy shrank 1.2 percent in the second quarter of last year and 3.9 percent in the first three months of 2022.

For the whole of 2022, Hong Kong's economic contraction is 3.25 percent. Shrinkage to the fall in the total exports of goods amid a sharp deterioration in the external environment and disruptions to cross-boundary truck movements. So that domestic demand is checked.

This was also dragged by Hong Kong's fifth wave of Covid cases, which impacted financial conditions. However, the Hong Kong government spokesman is quite optimistic that there will be a recovery in 2023. A rebound will occur, mainly because exports of services.

"Looking ahead, the Hong Kong economy is expected to show a recovery in 2023. While softer growth of the advanced economies will continue to pose challenges to Hong Kong's exports of goods," said the spokesman in the statement.

"An expected strong rebound of inbound tourism following the removal of quarantine arrangements for visitors and resumption of normal travel between Hong Kong and the mainland should underpin a recovery of services exports," concluded the spokesman.

Hong Kong Must Tigheten Belt in Post Covid era

Even though Hong Kong's economy was downgraded from expectations, now Hong Kong's central bank and economists are receiving many demands. Hong Kong is said to have tightened its belt in the post covid era to get through all the existing challenges.

Most Hong Kong stocks are also declining as traders wait for China's recovery signals. Hong Kong stocks fell, but China is the answer to this. According to a Hong Kong senior analyst, the market has been running a bit hard in the short term.

So they are currently, The Hong Kong government must establish an expansion policy by utilizing the annual budget. Expansionary fiscal policy in recent years is also possible, but the direction of the budgetary strategy needs to be more explicit.

Hong Kong's current economic policies cannot ultimately save the country's economy as China holds the reins for Hong Kong investors. If China sets a favorable policy towards investors, Hong Kong's economy will likely recover this year.