Months of anti-government protests and the US-China trade war forced Hong Kong into its first recession in a decade last year. Now the coronavirus risks plunging the Asian financial hub into its worst ever slump.
Hong Kong’s economy shrank 8.9% in the January-to-March period compared to a year earlier, according to estimates released by the government on Monday. It’s the third straight quarter of contraction for the trade and finance hub, and its worst quarterly drop since records began in 1974.
“The threat of Covid-19 seriously disrupted a wide range of local economic activities and supply chains in the region,” a government spokesman said in a statement that accompanied the data. “With the disease evolving into a pandemic in March, the economic fallout became even more severe.”
The sharp declines in exports, investment and private consumption add to the misfortunes of a fragile Hong Kong economy.
GDP shrank 1.2% last year as massive pro-democracy protests forced shops to close, paralyzed the city’s streets, and scared away tourists. The trade spat between Beijing and Washington compounded the problem, as did concerns about China’s economic growth.
Prior to the release of the GDP data Monday, Hong Kong’s benchmark Hang Seng Index (HSI) plunged nearly 4.2%, its worst day since the middle of March, as investors fretted about renewed tension between the United States and China and the impact that could have on the economy.
In the weeks before the coronavirus outbreak, Hong Kong had reason to hope that 2020 would be better than 2019. The demonstrations were becoming less frequent, and an initial trade deal provided some hope that the relationship between the United States and China could improve.
Instead, the coronavirus has crushed any hope for a near-term recovery and sent the economy into an even more precipitous decline. When compared to the already weak fourth quarter of 2019, GDP in the first quarter still shrank 5.3%.
“Looking ahead, with the Covid-19 pandemic causing a severe contraction of global economic activity, Hong Kong’s exports will remain under notable pressure in the near term,” according to the government statement.
The government also reiterated its forecast of a 4% to 7% contraction for Hong Kong’s economy in 2020.
The continued economic slump “is worrying,” Hong Kong Financial Secretary Paul Chan wrote in a blog post Sunday, adding that this year could be the worst for Hong Kong’s economy since it started keeping annual records.
He expected the economy to rebound somewhat, as the city eases restrictions on workplaces and social gatherings this month. But since the global economy is still struggling with the pandemic, it’s unlikely Hong Kong will have a strong recovery in the near term.
The government has rolled out several rounds of relief measures totaling 290 billion Hong Kong dollars ($37 billion) to blunt the economic blow. That includes a cash handout of $10,000 Hong Kong dollars (roughly $1,200) to eligible residents.