Hong Kong heads for 1st back-to-back recessions on record

Economists say rapid recovery unlikely, as virus fears hit city weakened by protests

HONG KONG • Hong Kong is heading for its first back-to-back annual recessions on record, as the coronavirus outbreak cripples an economy already battered by months of political unrest.

Economists' forecasts since the start of this month point to a contraction of more than 1 per cent this year, following a 1.2 per cent decline last year. That would mark a bigger decline and a slower recovery from the virus than from the Sars episode of 2003, when output roared back after the all-clear was signalled.

Weakened by months of anti-China protests that have kept tourists away and slashed retail receipts, Hong Kong cannot rely on trade and arrivals from the mainland to stoke an economic comeback. The world's second-largest economy is struggling to restart production after shuttering factories and businesses in an effort to stem the spread of the illness.

"The likelihood of a rapid recovery is very slim this time around," said Mr Dong Chen, senior Asia economist at Pictet Wealth Management. "Neither the global economic environment nor Hong Kong's domestic political situation supports it."

This presents a grim outlook for Hong Kong this year as the government prepares its annual budget, due next Wednesday.

Chief Executive Carrie Lam must juggle the needs of the service sector, an increasingly stretched healthcare system and longstanding issues including the chronic lack of housing, all amid a political crisis that will make bold action even less likely than usual.

The median estimate of economists surveyed by Bloomberg since the start of this month is for a 1.2 per cent contraction for this year. The virus has also steepened forecast contractions for the first two quarters of the year, while delaying an anticipated recovery in earnest into the fourth quarter.

"The impact of the virus on the economy would be severe in the first quarter," said Mr Samuel Tse, an economist with DBS Bank. "Private consumption, which accounts for over 60 per cent of the city's GDP, will take the hardest hit."

Hong Kong was able to recover quickly from Sars in large part due to tourism spending from a booming Chinese economy.


Yet, circumstances in China now are very different from 2003. The increasingly anti-China nature of the unrest in Hong Kong in recent months also makes it unlikely that mainland tourists will flock to the city even after virus fears abate.

That Chinese economic boom heralded a multi-year rise in wealth and spending in the financial hub of Hong Kong, from the proliferation of luxury shopping centres to an almost six-fold increase in property value and an influx of Chinese investment via stock and bond trading links.

It is unclear if Hong Kong will ever see visitor levels from the mainland return to the record high of more than five million per month posted before the protests. Mainland visitors typically account for 70 per cent to 80 per cent of total arrivals into the city.

Preliminary visitor arrivals data for this month shows average daily traffic to the city plummeted to fewer than 3,000 people, according to the Hong Kong Tourism Board. That is an almost 99 per cent decline from the same period last year, data compiled by Bloomberg shows. The jobless rate rose to 3.4 per cent last month for a fourth straight month of increases, according to data released on Tuesday.

This makes for a very difficult consumption environment in which to add major government stimulus, said Natixis chief Asia-Pacific economist Alicia Garcia Herrero.

Nevertheless, Mrs Lam announced this week that the government will seek approval from the legislature for almost HK$28 billion (S$5 billion) in fresh funding to reduce the effects of the coronavirus outbreak in the city.

The extra spending comes on top of a similar amount rolled out last year to stem the bleeding from months of unrest, as well as another HK$10 billion in livelihood measures announced last month.


A version of this article appeared in the print edition of The Straits Times on February 20, 2020, with the headline 'Hong Kong heads for 1st back-to-back recessions on record'. Subscribe