Hong Kong’s economy has slipped into its second recession in three years as tough Covid-19 restrictions have damaged the Chinese territory’s reputation as an international financial hub.
Official data released on Monday showed the city’s gross domestic product contracted 1.4% in the second quarter of 2022, after falling 3.9% in the first three months. The fall exceeded a forecast decline of 0.2%, according to economists polled by Bloomberg.
Hong Kong has followed a version of Beijing’s “zero-Covid” strategy to stamp out the virus, and the city is one of the last in the world still clinging to enforced hotel quarantine for inbound travellers.
The companies have warned that the restrictions, which include an array of social distancing measures that have been in place in one form or another for more than two years, are forcing them to base more staff out of town, eroding its status as commercial hub and trailing economic activity.
Hong Kong suffered its first recession in a decade in 2019 after anti-government protests prompted a crackdown by authorities and emptied the city of tourists, who had previously arrived from mainland China in the tens of millions.
About 65,000 people visited Hong Kong from China last year, official data showed, compared to 2018, when the city welcomed more than 51 million mainland tourists.
Iris Pang, chief economist for Greater China at ING, forecast the city’s full-year GDP growth of 0.7% after worse-than-expected quarterly figures.
“It’s pretty awful. Basically, it would be near zero growth,” she said. “Until the borders are reopened, the flow of people will be under pressure and investment will be limited.”
Gary Ng, an economist at investment bank Natixis, said he expected zero percent growth this year. “Even if there is a rebound in the second half, it might not be able to bring the economy back to a comfortable growth position,” he said.
Beijing’s response to the protests, including the imposition of a sweeping national security law and the elimination of independent civil society, further spooked investors.
The Covid-19 has worsened the malaise in the city, causing an exodus of locals and expatriates. Cross-border travel with the mainland has also required quarantine, cutting off an essential corridor for the local economy.
Paul Chan, Hong Kong’s finance minister, said on Sunday that rising interest rates and a gloomy global economic outlook would lead to slower exports and consumption in the city. Hong Kong is “inevitably” expected to cut its forecast for annual economic growth by 1-2%, Chan added.
John Lee, the city’s new chief executive, said the government plans to shorten the hotel quarantine requirement for arrivals, which is at least seven days.
But the government has provided no details for a full reopening and proposals for large-scale public events planned for this year give no indication of a full easing of Covid-19 restrictions.
The Hong Kong Rugby Sevens tournament, which drew tens of thousands of spectators each year, is set to take place in November in a “closed-loop” format for visiting players, similar to the Beijing Olympics.
“Without meaningful changes to the current regime, international businesses will continue to stay away from Hong Kong, move their operations to more accessible locations and reduce their footprint in the city,” the Australian Chamber of Commerce in Hong Kong said. Kong in a recent open letter.