Hong Kong economy slumps at record rate, coronavirus clouds outlook

About 25 percent of retail stores in Hong Kong were expected to close by the end of the year, despite fresh government relief measures. (AFP)

• Economy shrank 8.9 percent in the first quarter compared with a year earlier
• Hong Kong attempting to gradually reopen, as the number of new infections remains subdued

HONG KONG: Hong Kong’s economy suffered its worst quarterly drop on record in the first three months of the year, as the coronavirus pandemic hobbled activity following months of unrest, final data showed on Friday.
The economy shrank 8.9 percent in the first quarter compared with a year earlier, the third straight quarter of year-on-year contraction and its worst drop since records began in 1974.
The first quarter’s pace compares with a decline of 3.0 percent in October-December period and an advance estimate of negative 8.9 percent.
“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.
On a quarterly basis, the economy contracted a seasonally adjusted 5.3 percent for the January-to-March period, after a revised 0.5 percent drop in the fourth quarter of 2019.
Tourist arrivals dived 99.9 percent year-on-year in April to 4,125 visitors, Tourism Board data showed.
About 25 percent 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 percent in the quarter compared with the same period in 2019. The volume of retail sales fell by 36.9 percent 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 percent from negative 4.8 percent.
“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.
The government also reiterated its forecast for this year of a 4 percent to 7 percent contraction.
“If the local epidemic remains well contained and our major trading partners are successful in reopening their economies, Hong Kong’s economic performance will hopefully improve gradually in the second half of the year,” Au said.