Hong Kong’s economy shrank 1.2% last year, officials said on Monday, and the city’s financial secretary now expects the coronavirus to make a bad situation worse. “It will definitely cause a double blow to the economy,” Paul Chan wrote in a Sunday blog post. The virus, he added, “will greatly increase the risk of continued economic contraction this year.”
The city fell into recession in 2019 for the first time in a decade. Months of increasingly violent protests did much of the damage, along with the US-China trade war. GDP dropped 2.9% in the fourth quarter alone. The government said Monday that this year’s outlook is “subject to high uncertainties,” including the global economy, trade and the protests, and that it would “monitor the situation closely” on the virus.
Things had looked brighter. Demonstrations were becoming less frequent and a first US-China trade deal was in place. “The US-China phase one trade deal and growth stabilization in China should have been positive for Hong Kong’s near-term economic outlook,” said Tommy Wu, a senior economist at Oxford Economics. “But it has been overshadowed by the coronavirus outbreak.”
A city in half-lockdown
The government has closed schools for weeks and told civil servants to work from home, urging private companies to do likewise. Retail stores, theme parks and cultural attractions stay shut. Most people out on the streets are wearing face masks. Hong Kong has avoided the worst so far, with 15 confirmed cases and no deaths, while mainland China has more than 17,000 cases and at least 360 deaths.
Memories of SARS in 2003 loom large. More than 280 of the 774 people who died of it were in Hong Kong, the highest toll outside the mainland. That outbreak shrank the city’s economy by 0.5% in the second quarter before a rebound later in the year.
Hospitality caught twice
The protests hit hospitality and food and beverage hardest, because people stopped going out for fear of being caught in a demonstration or cut off from public transport. A recovery had started in December, according to Allan Zeman, founder of the property developer Lan Kwai Fong Group. “It’s kind of a double whammy for Hong Kong,” he said. “We were hoping that going into the Year of the Rat that this would continue. Suddenly, the coronavirus hit.”
Syed Asim Hussain, co-founder of Black Sheep Restaurants, which runs more than 20 Hong Kong businesses, told CNN Business that things were on the up until the first weeks of January. “However we are now again between a rock and a hard place,” he said. He expects a slow February and a possible “financial write off” for the first quarter.
Zeman was blunter about tenants: “At the moment, there’s no light at the end of the tunnel. I know many of my tenants, I don’t know if they can survive.” He cautioned that it is too early to judge, since many businesses were only returning after the Lunar New Year.
Tourism and forecasts
Visitor numbers in November fell by nearly half from a year earlier, according to the latest government figures. Most visitors come from mainland China, where many cities are under lockdown, and Hong Kong has closed some border crossings.
Forecasters differ on the damage. Goldman Sachs cut its first-quarter growth forecast for Hong Kong from 5.6% to 4% on Friday, and warned a prolonged outbreak could pull full-year growth to 5% or less. Iris Pang, an economist at ING, expects only a moderate hit to retail and no substantial effect on GDP. Wu said supermarkets and drugstores are doing better, but “shopping malls and luxury brands will likely be hit badly.”
