Hong Kong’s economy contracted for the fourth straight quarter as the coronavirus pandemic and political tensions extend the city’s first recession in a decade.
The territory’s economy contracted 9% in the second quarter from a year earlier, according to an advance reading from the Census and Statistics Department Hong Kong. That’s worse than the median forecast of -8.3% and follows a revised 9.1% drop in the first quarter that was the worst dating to 1974 data.
Revised second-quarter figures as well as an updated forecast for GDP growth in 2020 will be released Aug. 14, according to the government report.
“Locally, the recent surge in Covid-19 cases has clouded the near-term outlook for domestic economic activity,” the government said in the release. “Nonetheless, once the local epidemic is contained again and external environment continues to improve, the Hong Kong economy hopefully will gradually recover in the rest of the year.”
Hong Kong reported 118 additional coronavirus cases on Wednesday, bringing total infections to 3,002, Department of Health official Chuang Shuk-kwan said at a briefing.
The overall economic situation stabilized somewhat during the quarter, especially in May and June when the virus was largely under control, the government said. On a quarter-to-quarter seasonally adjusted basis, the economy contracted 0.1% in the three months to June.
Still, Hong Kong’s economy shows few signs of a recovery after suffering repeated setbacks over the past year. The U.S.-China trade war and anti-government protests first pushed the city into recession in the second half of 2019. Then the global pandemic this year eroded what little tourism remained, decimating the city’s retail, food and beverage and hospitality industries.
“As an international hub that relies on passenger and goods flows, this figure summarizes the sharp contraction of tourism and the event industry,” said Raymond Yeung, greater China chief economist with Australia & New Zealand Banking Group Ltd. “As the case numbers rise again in July and the government starts to tighten, the outlook for Q3 remains very challenging. Another quarter of negative growth is highly probable.”
This latest decline marks four consecutive quarters of economic contraction, equaling the period after the global financial crisis. The current stretch is only one quarter behind the longest recession on record, when Hong Kong’s economy shrank for five quarters in 1998-1999.
The city’s unemployment rate has surged to a 15-year high, leaving thousands jobless and the city’s poor even more vulnerable. Retail sales likely had a double-digit fall again in June, according to forecasts of data due Thursday.
“We expect many small restaurants to shut down and unemployment will rise to around 8%,” said Iris Pang, greater China chief economist with ING Bank NV. The unemployment rate is currently at 6.2%.
Hong Kong’s future as a Asian finance hub is in question after Beijing imposed a national security law at the end of June, leading the U.S. to revoke the city’s special status. Further putting pressure on the economy are efforts to contain the third wave of virus infections, with the government imposing tighter restrictions on the restaurant industry and limiting public gatherings to two people.
“It may take longer than originally expected for the local economy to recover,” Financial Secretary Paul Chan said in a July 26 blog post on his website.
(Adds detail, economist comments.)
–With assistance from Tomoko Sato and Matt Turner.