HONG KONG - Labour woes in the city, which was dealt a double whammy first by months-long protests and now the coronavirus outbreak, are expected to worsen in the coming months even as the jobless rate in February reached a nine-year peak.

Higher jobless rates in the construction, retail, accommodation and food services sectors meant that the seasonally adjusted unemployment rate rose to 3.7 per cent for the December-February period, up from 3.4 per cent in the November-January period.

Total employment fell by about 0.9 per cent or 34,400 to 3.77 million from December to February, provisional data released on Tuesday (March 17) by the Census and Statistics Department showed.

Over the same period, the labour force shrank by around 0.6 per cent or 22,500 to 3.9 million.

The underemployment rate from November to January went up from 1.2 per cent to a five-year high of 1.5 per cent in December to February.

Secretary for Labour and Welfare Law Chi Kwong attributed the deterioration in the labour market to the Covid-19 epidemic, which he said had caused severe disruptions to a wide range of economic activities and dampened economic sentiment.

"The year-on-year decline in total employment widened to 2.5 per cent, the largest since the Asian financial crisis. The decline in labour force also enlarged in parallel, suggesting that some people had chosen to leave the labour force upon losing their jobs."

Weak economic sentiments, coupled with social and political turmoil last year, battered tourism-related sectors but the situation had deteriorated with the coronavirus epidemic.

Dr Law said the threat of the Covid-19 infection had "brought inbound tourism to a standstill and dealt a severe blow to consumption-related activities".

He said the unemployment and underemployment rates of these sectors combined had surged to 6.1 per cent and 2.5 per cent, respectively, making them the highest in about a decade.

Giving a grim outlook, Dr Law expects the labour market to be subjected to "even greater pressure in the near term".

Economics professor Terence Chong from the Chinese University of Hong Kong said the unemployment rate will continue to climb in the coming months.

Compared with the severe acute respiratory syndrome outbreak in 2003 when the unemployment rate went up to about 8.6 per cent, the February rate of 3.7 per cent does not look as bad.

"This is not a high level but within a month it has gone up 0.3 percentage point so the speed is alarming and we can expect it to continue to rise and will reach four per cent soon," said Dr Chong.

ING chief economist for Greater China Iris Pang believes the unemployment rate could go past 4.5 per cent in three months.

This is due to the cumulative effect of the trade war, protests and coronavirus outbreak, which hit not just the retail and catering businesses but also the merchandise trade business such as shipping companies and ports.

"The recovery will be slow in Hong Kong compared to the rest of the world even as the pandemic subsides as the violent protests will return and the technology war and trade war will go on," warned Ms Pang.

To add to the doom and gloom, Hong Kong has lost its crown as the world's freest economy for the first time in 25 years.

Singapore overtook Hong Kong for that accolade in the Heritage Foundation's 2020 Index of Economic Freedom report released on Tuesday (March 17), with a score of 89.4. Hong Kong was ranked second, with a score of 89.1.

The Washington-based research institution said social unrest and exposure to the mainland led to a lower score for Hong Kong, which had been named the best place to do business since 1995.

"The ongoing political and social turmoil has begun to erode its reputation as one of the best locations from which to do business, dampening investment inflows," said the report.

It pointed out that Hong Kong's traditionally open and market-driven economy has "become increasingly integrated with the mainland through trade, tourism, and financial links", and that the city's judicial system came into question with the now-withdrawn extradition law.

Responding to the report, the government said in a statement: "We are naturally disappointed that Hong Kong, which held the world's freest economy title for 25 successive years, has dropped to No. 2. But we welcome the Foundation's continued recognition of Hong Kong's various strengths and its awareness that the territory remains a dynamic global financial centre with a high degree of competitiveness and openness."