HONG KONG: Hong Kong’s economy shrank for the first time in over a year after a fledging recovery was cut short by a deadly coronavirus outbreak, though analysts say the worst may be over.
Gross domestic product (GDP) for the first quarter of 2022 contracted by 4% from a year earlier, according to advance government figures released today.
That compares with revised growth of 4.7% in the fourth quarter and forecasts for a 1.2% decline by DBS and 1.3% drop by Standard Chartered for the first quarter.
On a quarterly basis, the economy shrank by a seasonally adjusted 2.9% in January-March.
Hong Kong's economy is expected to grow 2.0% to 3.5% this year after expanding 6.4% in 2021, with underlying inflation at 2%.
The government attributed the downturn to weak performance in domestic and external demand, adding that the economy faced “immense pressure” last quarter.
“Externally, moderating global demand growth and epidemic-induced cross boundary transportation disruptions posed substantial drags to exports,” a government spokesman said.
“Domestically, a wide range of economic activities as well as economic sentiment were hard hit by the fifth wave of local epidemic and resultant anti-epidemic measures.”
The southern Chinese financial hub enjoyed four successive quarters of growth in 2021, recovering from a two-year recession prompted by social turmoil and the start of the pandemic.
Hong Kong largely kept the virus out last year by following China’s zero-Covid policy, imposing some of the world’s harshest coronavirus controls that left the city isolated internationally.
But its pandemic response collapsed in January with the more transmissible Omicron variant, which killed more than 9,000 people and shut down swathes of the economy.
Private consumption fell by 5.4% in real terms in the first quarter from a year earlier, according to the data, while exports of goods and services declined by 4.5% and 2.8% respectively.
Hong Kong eased some pandemic restrictions last month and city leader Carrie Lam today announced that more policy relaxations – including the reopening of beaches and bars – will kick in as early as Thursday.
The government said it expects a revival of domestic demand this year, though it acknowledges “significant challenges in the near term” in the global economy that may affect Hong Kong's outlook.
Sheana Yue, an economist at Capital Economics, told Bloomberg that Hong Kong's financial rebound might be “softer initially as containment measures are only gradually rolled back”.
Hong Kong's political elite will choose the city's next leader on Sunday, with former security tsar John Lee running uncontested.
Lee earlier said he will prioritise reopening the border with China, even as the country struggles with multiple outbreaks.
He described Hong Kong’s pandemic response as a “balancing act” without giving a concrete timeline for exiting zero-Covid.
In a separate development, Fitch said today it has cut China's GDP growth forecast for 2022 to 4.3% from 4.8%, saying pandemic-related disruptions have had an impact on the country's economy in the first two quarters of the year.
The rating agency said it stills expects a quarter-over-quarter GDP contraction in the second quarter, before the economy starts to recover.
Fitch raised its 2023 growth forecast for the country slightly higher to 5.2% from 5.1%. – AFP, Reuters