Hong Kong Q1 GDP shrinks 8.9% in worst recession on record

HONG KONG (REUTERS) - Hong Kong's economy shrank 8.9 per cent in the first quarter compared with a year earlier, the government said on Friday (May 15), as the coronavirus pandemic dealt a heavy blow to the city following months of social unrest.

It is the third straight quarter of year-on-year contractions for the Asian financial hub, and its worst quarterly drop since records began in 1974.

The first quarter's pace compares with a decline of 3 per cent in the previous quarter, and an advance estimate of negative 8.9 per cent.

On a quarterly basis, the economy contracted a seasonally adjusted 5.3 per cent for the January-to-March period, after a revised 0.5 per cent drop in the fourth quarter of 2019.

The government also reiterated its forecast for this year of a 4 per cent to 7 per cent contraction for Hong Kong's economy.

"Looking ahead, as many major economies are still facing the serious threat of COVID-19, the global economy may continue to experience sharp contraction in the near term despite the massive monetary and fiscal support measures from central banks and governments worldwide," government economist Andrew Au said in a statement.

"The progress of reopening the major economies and thus the timing and speed of recovery of the global economy will hinge on the developments of the pandemic and global public health situation, which are subject to huge uncertainties," Au said.

Other uncertainties, such as US-China trade relations, geopolitical tensions and global financial market volatility, also warrant attention, Au added.

Tourist arrivals dived 99.9 per cent year-on-year in April to 4,125 visitors, Tourism Board data showed. About 25 per cent of retail stores in the city were expected to close by the end of the year, despite fresh government relief measures, according to the Hong Kong Retail Management Association.

The value of total retail sales plunged by 35.0 per cent in the quarter compared with the same period in 2019. The volume of retail sales fell by 36.9 per cent year-on-year, the largest decline for a single quarter on record.

Last week, Financial Secretary Paul Chan described the economic environment as very challenging and said the recovery would be slow, even if the coronavirus was contained. The Chinese-ruled city is attempting to gradually reopen, as the number of new infections remains subdued. Analysts still predict a poor performance in the second quarter before a modest recovery in the second half of the year.

"Hong Kong's social-distancing and other restrictions came into effect in late March, and the recent accelerated rise in the unemployment rate still has some way to go," Standard Chartered said in a research note that downgraded the 2020 growth forecast to minus 7.2 per cent from negative 4.8 per cent.

"This, together with the risk of re-escalating social tensions ahead of the September Legislative Council elections, means that the second-half recovery is likely to be U-shaped at best," it said.