Hong Kong is on a difficult road to recovery after two years of unprecedented economic weakness triggered by massive political upheaval and a global pandemic.
Official data due Friday is set to show a record 6% contraction in gross domestic product in 2020, with a 2.1% estimated decline in the fourth quarter from a year earlier, according to the median forecast of economists surveyed by Bloomberg.
Hong Kong hasn’t posted back-to-back annual contractions in data going back to at least 1962. And the biggest contraction in GDP over that period was a 5.9% decline in 1998, when the city was affected by both the Asian Financial Crisis and the handover to China.
Even before the coronavirus hit, the city’s economy was under stress following months of disruptive pro-democracy protests in 2019 that curbed spending and investment. Once the virus began spreading, travel bans brought tourism to a halt and social distancing restrictions put a further dent in spending. By the end of 2020,unemployment had surged to a 16-year high of 6.6%.
“The next 18 months for me will be full of challenges. I need to deal with this pandemic, and then I need to stimulate the economy to create more jobs for the people of Hong Kong,” Chief Executive Carrie Lam said an interview with Bloomberg Thursday. “In a place like Hong Kong we are faced with challenges at every moment.”
Lam said the economy has a very good chance of achieving positive growth this year, subject to the course of the pandemic. She pointed to better growth in exports and imports in the latter half of last year as signs of a recovery and said spending at retailers and restaurants will pick up once virus restrictions are lifted.
Trade data earlier this week suggests exports will be a key component of that rebound. December exports surged 11.7%, the fastest pace since October 2018, on the back ofshipments to the mainland.
“Exports will do great this year,” said Tommy Wu, senior economist with Oxford Economics in Hong Kong. “China’s exports will grow fast again this year so it should benefit Hong Kong as a re-export hub.”
However, without virus infections under control, the economy’s recovery is uncertain. Hong Kong reimposed some of its tightest virus restrictions in December to curb new cases andlocked down densely populated neighborhoods on the weekend to mass test residents.
The economy lost momentum in the final three months of the year, with growth slowing to 0.8% on a quarter-on-quarter basis, according to the median forecast in the survey.
Retailers and restaurants are the industries worst hit by the Covid-19 restrictions, but online spending and usage of financial services will help offset some of the impact, said Wu, urging the government to boost stimulus spending in February’s budget.
“The government should and will spend a little bit more on stimulus in the upcoming budget,” he said.
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