HONG KONG - Hong Kong’s economy recorded its worst contraction in more than two years as the financial hub’s recovery was stymied by weak global demand, China’s continued Covid-19 curbs and a slow reopening from years of pandemic isolation.
Gross domestic product plunged 4.5 per cent in the July-to-September period from a year earlier, according to advance estimates released by the government on Monday.
That was far weaker than economists’ forecasts for a 0.8 per cent decline, and worse than the second quarter’s 1.3 per cent fall.
It was also the third consecutive quarter of contraction, and the worst decline since the second quarter of 2020.
The city’s economy has been under strain for months from the global slowdown and trade disruptions with China because of Covid-19 Zero restrictions, along with a talent exodus from more than two years of local virus restrictions and political turmoil.
Tightening monetary policy - the city has followed the US Federal Reserve’s interest rate hikes because of the local currency’s peg to the dollar - has also taken a toll on the city’s growth.
The government blamed the fall on a worsened external environment - including the aggressive rate increases - along with disruptions to cargo flows along its border with China, a spokesman said in a release accompanying the data.
While the third quarter’s drop was steep, it largely recorded activity before the city rolled back its most severe Covid-19 restrictions, including hotel quarantine.
Toward the end of September, Hong Kong moved to scrap that requirement, its most substantial step so far to raise the city’s competitiveness as much of the rest of the world has shifted to living with the virus.
The recent relaxation of those arrangements for inbound visitors “should help exports of services”, the government spokesman said in Monday’s release.
Chief Executive John Lee announced a raft of measures in his policy address earlier in October aimed at wooing back foreign talent and easing property pressures, but economists and investors have said the proposals fell short of major policy reform.
Another pressure point is the city’s budget shortfall, which may triple this year from earlier estimates.
And officials acknowledged that global headwinds will continue to challenge the recovery for the economy, which could contract for the full year for the third time since 2019.
The “markedly deteriorating external environment will continue to pose immense pressure on Hong Kong’s export performance in the remainder of the year”, the government spokesman said.
