This July 16, 2020 general view taken from Victoria Harbour shows the skyline of Hong Kong. (ANTHONY WALLACE / AFP)

Hong Kong’s economic slump narrowed in the fourth quarter because of a boost in both domestic and external demand.

According to the advance estimates, gross domestic product (GDP) decreased 3 percent in real terms in the fourth quarter of 2020 from a year earlier, compared with the decrease of 3.6 percent dip in the third quarter of 2020. 

On a seasonally adjusted quarter-to-quarter comparison basis, GDP increased 0.2 percent in the fourth quarter of 2020 when compared with the previous quarter, having rebounded by 2.7 percent in the period

For 2020 as a whole, the city’s economy contracted 6.1 percent from 2019, in line with economists’ expectations.

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Last year, private consumption expenditures tumbled 10.2 percent, government consumption expenditure slipped 7.8 percent, and gross domestic fixed capital formation fell 11.6 percent. Regarding the external sector, total exports of goods decreased 0.3 percent, and total exports of services plunged 36.8 percent in the same period.

The government attributed the performance to the uneven recovery in the domestic and external sectors.

“Consumption- and tourism-related sectors such as accommodation, food services and retail trade were particularly hard-hit by the pandemic and recorded much steeper contractions than the overall economy. In contrast, financial market activity stayed robust and activities relating to exports and imports of goods picked up visibly in recent periods,” a government spokesman said in a statement on Friday.

“The Hong Kong economy is expected to see positive growth for 2021 as a whole, but the economic situation in the first half of the year will remain challenging and the degree and speed of recovery is subject to a host of uncertainties, especially those about the pandemic situation,” the spokesman added.

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The pace of economic recovery of the mainland economy and other major economies, evolving Sino-US relations and persistent geopolitical tensions, as well as the prospect of domestic economic activities, are the factors that will determine the pace of Hong Kong economic recovery this year, financial experts said.

“Moving into 2021, should the vaccine rollout fuel a rebound of external demand, Hong Kong’s trade sector may remain resilient. In comparison, the sectors hit hard by COVID-19 may take longer to recover amid a weak labor market and the gradual unwinding of relief measures. We tip a GDP growth rate of 3 percent to 5 percent in 2021,” OCBC Wing Hang Bank economist Carie Li said.

Investment bank Daiwa Capital Markets warned in its Hong Kong economy research note: “There seems to be a lack of public confidence in the vaccines, as many may choose to wait. We are not convinced that the majority of the population will get vaccine protection at least until mid-2021, which means many travel and social restrictions are likely to remain in place until the second half of this year.”

The revised figures on GDP in 2020 as well as the real GDP growth forecast for 2021 will be released when Hong Kong’s 2021-22 Budget is announced on Feb 24.