If not the virus, then protests: Hong Kong faces deeper recession

Hong Kong’s economy faces a double threat of the coronavirus pandemic and persistent anti-government protests.

Riot police
Anti-government protesters who have taken to shopping malls to stage protests since the coronavirus outbreak have come up against the riot police [File: Tyrone Siu/Reuters]

Benjamin Archangeli arrived in Hong Kong just before the city imposed a mandatory quarantine on all inbound travellers in March due to the coronavirus outbreak. He has now spent weeks living in a hotel room, waiting to secure a work permit.

The clothing industry executive from the United States, who had landed a job with a Hong Kong-based apparel supplier, says he saw more people on the streets than he had expected.

But appearances can be deceptive.

The prospects for his industry and across almost every other sector of Hong Kong’s economy are dimming.

“Global retail demand has dropped off dramatically. We’ve had a round of layoffs and closed some manufacturing sites. Job security is not guaranteed,” Archangeli told Al Jazeera via text message.

Even before the travel restrictions and business closures were enforced to prevent the spread of the virus, Hong Kong’s economy had been struggling with a recession, defined by economists as at least two consecutive quarters of contraction in gross domestic product (GDP), the sum of all goods and services produced in a nation in a given period of time.

The trade war between the US and China added to the pressure of months of violent anti-government street protests.

Now, many experts warn that the semi-autonomous Chinese territory may be experiencing its worst downturn ever as anti-virus measures exacerbate Hong Kong’s woes. A preliminary official estimate of the economy’s performance in the first quarter is due to be released on Monday.

“The magnitude of Hong Kong’s economic recession in the first quarter could be worse than 2008’s global economic tsunami, or the impact of the Asian financial crisis [in 1997-98],” Hong Kong Financial Secretary Paul Chan said during a Legislative Council meeting on Wednesday.

Hong Kong’s GDP shrank by 2.9 percent in the fourth quarter of 2019, extending a 2.8 percent contraction in the third quarter.

Not firing on all cylinders

For the whole of 2020, Chan said the city’s GDP could shrink by between 4 percent and 7 percent as the three main drivers of Hong Kong’s economy – foreign trade, consumption and investment – have all stalled.

In comparison, the 1998 crisis resulted in an 8.3 percent drop in GDP, and a 7.8 percent shrinkage in 2009.

Iris Pang, a Greater China economist at Dutch investment bank ING, expects a fall of 10 percent in Hong Kong’s economic growth in the first quarter compared with the same period last year.

“Hong Kong’s tourism, retail and catering businesses have been double hit by protests and COVID-19. Small business owners have hung on to business not since February 2020, but since the second half of 2019. Covid put extra pressure and stress on the small businesses,” she told Al Jazeera.

Passengers wear protective suits, amid the outbreak of coronavirus, at Hong Kong International Airport, Hong Kong, China March 17, 2020. REUTERS/Tyrone Siu
Visitor arrivals to Hong Kong have shrunk to even lower levels than during the 2003 SARS outbreak due to the coronavirus [FIle: Tyrone Siu/Reuters]

The downturn is having a dramatic effect on jobs.

The unemployment rate soared in the first quarter to 4.2 percent, the highest in nine years.

Pang says it could rocket to 8 percent to 10 percent in 2020, much worse than the situation in 2003 when Hong Kong’s economy was ravaged by the outbreak of Severe Acute Respiratory Syndrome (SARS).

Visitor arrivals have all but stopped to the island, as February tourist numbers declined more than 96 percent from the previous year.

“Travel bans resulted in the complete collapse of tourist visits, which fell by 81 percent year-on-year in the first quarter of 2020. This has created a massive economic shock for Hong Kong’s tourism industry, hotels and airlines,” Rajiv Biswas, Asia-Pacific Chief Economist at IHS Markit told Al Jazeera.

“The collapse of tourism visits has also hit retail sales, as tourist spending is important for many segments of retailing, including luxury goods and restaurants,” Biswas added. He expects Hong Kong’s economy to contract 7.8 percent in the first quarter.

Hong Kong recorded just 199,000 visitor arrivals for the whole of February. That is about the same number of people who arrived each day during the peak of northern hemisphere summer months the year before. Even the SARS outbreak did not affect the island as badly.

The city is trying to get back on its feet following a two-week lockdown. Government employees are due to return to offices on May 4 and the city plans to open public facilities such as museums and libraries, Chief Executive Carrie Lam said on Tuesday.

“When we relax these measures, if the need arises, we may need to tighten them again until there is a vaccine developed,” she said at a briefing before a meeting of her advisory Executive Council.

Hong Kong has recorded no new cases for five straight days as of April 30, according to government statistics and has not reported a virus-related death since March.

Hitting where it most hurts 

Unfortunately for Hong Kong’s hardest-hit tourism and retail sectors, anti-government protests are likely to prevent business recovering even after the pandemic comes to an end.

“Even (if) COVID-19 is going to subside in Hong Kong, and let’s just assume that there are no more waves of infection, there is the restart of protests, which we have seen made shops close earlier in shopping malls,” Pang said.

The protests, which disrupted economic activity and dragged Hong Kong into a technical recession in the second half of 2019, have persisted despite social-distancing measures.

On April 24, about 100 protesters staged a demonstration at a luxury downtown mall at lunchtime in one of the largest protests since the coronavirus outbreak began, defying the ban on gatherings of more than four people.

The Hong Kong Confederation of Trade Unions, a pro-democracy labour group, had planned to hold a march on Friday that would have included social distancing between protesters as they rallied on concerns about public health and security risks.

However, Hong Kong police rejected their application saying they regarded public meetings and processions as “high-risk activities with crowd gatherings,” according to a government statement. They cited the increased risk of spreading coronavirus among participants as well as concerns about public safety.

“If the violent clashes … from the second half of last year resurface, it will definitely lead to more shops closing and foreign capital not daring to invest and do business in Hong Kong,” Chan told Legislative Council members.

Source: Al Jazeera