Hong Kong’s isolation estimated to cost economy $35 billion
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A busy street in the town of Sheung Shui in Hong Kong on Jan 4, ahead of the opening of the border on Jan 8.
PHOTO: AFP
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HONG KONG – Hong Kong’s economy lost an estimated US$27 billion (S$35 billion) in potential growth due to the effects of the pandemic and the city’s strict Covid-19 curbs, according to Natixis.
Natixis based its calculation on the assumption that Hong Kong’s economy would have grown an average annual 2.8 per cent over the past three years in the absence of Covid-19.
Hong Kong became one of the most isolated cities in the world as the government closed the borders for nearly three years. The financial hub will soon open its border to mainland China
Now that mainland China has abandoned its zero-Covid strategy, the reopening “will become a catalyst for Hong Kong’s growth with renewed cross-border activities”, according to Dr Gary Ng, a senior economist at Natixis.
Hong Kong’s economy may grow around 4 per cent this year, although testing requirements imposed by countries on travellers from China may delay normalisation, he said.
GDP is projected to have shrunk 3 per cent in 2022, according to the median estimate in a Bloomberg survey, the third contraction in four years. Rising interest rates and waning global demand have also weighed on the economy.
Still, the legacy of Hong Kong’s zero-Covid measures will be hard to shake off.
“The normalised economic activities will help Hong Kong retain its financial hub status, but some cyclical pressure has already become structural scars,” Dr Ng said, adding that investors and talent can find alternatives as businesses shift some operations to regional competitors.
Many expats and locals alike fled the city as Hong Kong clung to its Covid-19 curbs, leading to widespread concern over its ability to compete with places like Singapore as a regional hub. In the two years through June 2022, the city’s population fell by about 216,000, or 2.8 per cent, to 7.3 million. Concern over Beijing’s increasing control added to the exodus.
Chief Executive John Lee announced a plan in October to relax visa rules to stop the brain drain.
Singapore, which saw its economy grow 3.7 per cent last year, has also announced similar plans to entice highly skilled workers. BLOOMBERG
