Hong Kong’s economy slipped into its second recession in three years as strict Covid-19 restrictions damaged the Chinese territory’s reputation as an international financial centre.
Official data released on Monday showed that the city’s gross domestic product shrank 1.4 percent in the second quarter of 2022, after a 3.9 percent decline in the first three months. The decline exceeded the expected 0.2 percent decline, according to economists polled by Bloomberg.
Hong Kong has followed a version of Beijing’s “zero Covid” strategy to stamp out the virus, and the city is one of the last in the world still clinging to imposing hotel quarantines on incoming travelers.
Companies have warned that the restrictions, which include a suite of social distancing measures that have been in place for more than two years, are forcing them to house more employees outside the city, eroding its standing as a business hub and delays. The economic activity.
Hong Kong suffered its first economic recession in a decade in 2019 after anti-government protests led to a crackdown by authorities and emptied the city of tourists who had previously arrived in the tens of millions from mainland China.
Official data showed that about 65,000 people visited Hong Kong from China last year, compared to 2018, when the city received more than 51 million mainland tourists.
Iris Pang, chief economist for Greater China at ING, forecast full-year GDP growth for the city of 0.7 percent after worse-than-expected quarterly numbers.
“This is rather terrible. Basically, this will be close to zero growth. As long as the borders are not reopened, the flow of people will be under pressure and there will be limited investment.”
Gary Ng, an economist at investment bank Natixis, said he expects zero percent growth this year. “Even if there is a recovery in the second half of the year, it may not be able to return the economy to a comfortable growth mode,” he said.
Beijing’s response to the protests, including imposing a sweeping national security law and cracking down on independent civil society, has further spooked investors.
Covid has deepened the city’s malaise, displacing locals and expats. Cross-border travel with the mainland has also necessitated quarantine, cutting off an essential corridor for the local economy.
Paul Chan, Hong Kong’s finance minister, said on Sunday that higher interest rates and a bleak global economic outlook would translate into a slowdown in exports and consumption in the city. Chan added that Hong Kong would “inevitably” have to cut its annual economic growth forecast from 1 percent to 2 percent.
John Lee, the city’s new chief executive, said the government plans to shorten the hotel’s quarantine requirements for arrivals, which is at least seven days.
But the government has not provided any details of a full reopening, and proposals for large-scale public events scheduled for this year offer no indication of a complete easing of Covid restrictions.
The Hong Kong Rugby Sevens, which used to attract tens of thousands of spectators annually, is expected to continue in November in a “closed-loop” format for visiting players, similar to the Beijing Olympics.
“Without significant changes to the current system, international business will continue to move away from Hong Kong, move operations to more accessible locations and reduce its footprint in the city,” the Australian Chamber of Commerce in Hong Kong said in a recent open letter.