HK economy contracts 8.9% in worst quarter on record

Bloomberg

Hong Kong’s downturn is now the worst on record, extending the first recession seen in a decade as the coronavirus outbreak further battered an economy already weakened by political unrest. The city’s economy contracted 8.9% in the first quarter from year-ago levels, according to advance government data. The decline surpasses the previous record of -8.3% in the third quarter of 1998 and a 7.8% contraction in the first quarter of 2009, the two worst quarterly readings in data back to 1974, according to the Census and Statistics Department Hong Kong.
The latest decline also marks the third straight quarterly contraction for Hong Kong, the longest such stretch since the aftermath of the global financial crisis in 2009.
Economists had forecast a drop in output of 6.5% in the three months to March from the same period a year earlier. Hong Kong’s economy shrank 1.2% last year, the first time that had happened since 2009.
Financial Secretary Paul Chan warned of the worst full-year performance on record with a contraction of as much as 7%. Chan was expected to speak to the media at 5:00 pm local time on Monday about the GDP data.
Easing Controls
Even as the city prepares to ease some social distancing measures amid a steady improvement in the local outbreak situation, the hit to global commerce and the threat of renewed anti-government unrest means activity is likely to remain depressed. Unemployment is rising with tourism, retail, transport and other industries decimated.
“Faced with a collapse in global demand, Hong Kong’s small, open economy is taking a severe hit,” said Qian Wan, economist with Bloomberg Intelligence, in an April 28 note ahead of the results.
“The trade- and service-oriented economy will suffer a major drag from the global downturn.”
Chan, the city’s top economic policy official, had signalled that the reading for the first quarter this year could be even worse than past lows. The city’s economy already contracted in the second half of last year amid violent street protests and a government crackdown.
The extended downturn’s impact can be especially seen across the city’s struggling small and medium-sized businesses, which have borne the brunt of the impact from protests since last year and now the coronavirus.
“Hong Kong has been a risk-taking society relative to starting a business, but the situation going on the last year will create long memories in people’s minds,” said Todd Handcock, chairman of the Canadian Chamber of Commerce.
“It’s been a very challenging year for SMEs in Hong Kong. The unfortunate reality is some of these will not survive and others will struggle for a very long time.”