Hong Kong's economy contracted in the three months to June, with GDP falling 1.3 percent on the quarter after surging 5.3 percent in the three months to March. GDP increased 1.5 percent on the year, down from growth of 2.7 percent previously. Previously published PMI survey data also showed a contraction in economic activity over the quarter, with PMI survey data for July scheduled for release later in the week.

Weaker year-over-year GDP growth was broad-based across expenditure categories. Private consumption expenditure rose 8.5 percent on the year in the three months to June after increasing 13.0 percent previously, while gross fixed capital formation fell 1.0 percent on the year after a previous increase of 7.9 percent. Government consumption spending also fell sharply on the year, while growth in exports weakened.

GDP is a measure of the total value of production of all resident producing units of an economy in a specific period (typically a year or a quarter), before deducting the consumption of fixed capital. In Hong Kong, the initial release of GDP is called “preliminary figures”. Revisions follow as more information becomes available. The procedure is in accordance with the international practice to compile and release GDP data as soon as possible by using only partial data. In general, a final GDP is released when data from all regular sources are incorporated.

Hong Kong’s GDP is compiled using both the"expenditure approach" and the"production approach". Under the expenditure approach, GDP is compiled as the total final expenditures on goods and services (including private consumption expenditure, government consumption expenditure, gross domestic fixed capital formation, changes in inventories and exports of goods and services), less imports of goods and services.

Under the production approach, GDP is an aggregate measure of the total value of net output of all resident producing units. Net output is measured by value added, which is defined as the value of gross output less the value of intermediate consumption (that is the value of goods and services used up in the course of production). Each producing unit works to"add value". Summation of the value added of all resident producing units gives an aggregate measure of the total output of the economy which is free of double counting.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.