Hong Kong business activity contracts, sentiment turns negative on virus surge

The decline underscores the challenges facing the Asia finance hub as the spreading virus piles pressure on the government's Covid-zero strategy. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - A measure of economic activity in Hong Kong contracted in January for the first time in 11 months as the government imposed new restrictions amid a new wave of Covid-19 infections.

The decline underscores the challenges facing the Asian finance hub as the spreading virus piles pressure on the government's Covid-zero strategy. While that approach has kept overall infections low, it has isolated the city from much of the world through strict border controls and aggressive local measures.

The city reported a record number of coronavirus infections on Monday (Feb 7), with cases doubling every three days to 600 currently. New cases started to spike in the latter part of January and the government responded by ramping up restrictions, overlapping with the purchasing managers’ index (PMI) survey period of Jan 12 to 26. 

That outbreak is now hurting corporate confidence, with Hong Kong's IHS Markit PMI falling to 48.9 in the month, down from 50.8 in December and below the 50 threshold that separates expansion from contraction. Both new orders and output fell for the first time since March last year while overall sentiment also turned negative - business confidence fell to a one-year low.

On the upside, employment increased and price pressures eased. "The deterioration of Covid-19 conditions led to an immediate contraction of Hong Kong SAR's private sector," said IHS Markit economics associate director Jingyi Pan in a release. "Demand and output conditions both declined to a state comparable to early 2021 when the region previously saw elevated Covid-19 cases."

Hong Kong’s leader Carrie Lam on Tuesday pleaded with residents to stay home as the city battles its worst Covid-19 outbreak since the pandemic began, while vowing to stick with a zero-tolerance approach to stamp out the virus.

Mrs Lam said her administration would announce new Covid-19 restrictions and warned that the city’s health system was “on the brink”.

Asked about implementing a China-style citywide lockdown, Mrs Lam said the current mix of policies was the "best strategy" for Hong Kong "at this moment".

The rapid spread of the Omicron variant in the face of some of the world's toughest measures to root out the virus shows the difficulty of maintaining a strategy that aims to totally eliminate the spread of Covid-19.

With hundreds of people testing positive each day, the city's meticulous contact tracing and isolation measures have come under severe strain, with long lineups for testing and a constantly shifting approach to quarantine facilities.

"No government has at their disposal infinite energy and resources," Ms Lam said on Tuesday.

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.