HK deep in recession as GDP dives 8.9%
Hong Kong has sunk deep into recession with its economy posting its steepest quarterly plunge on record, shrinking by nearly 9 percent in the first three months of this year, exacerbated by the coronavirus pandemic.
The 8.9 percent year-on-year dive in the gross domestic product was the biggest fall since the government began tracking comparable data in 1974. The figure beats both the city’s 8.3 percent contraction during the 1998 Asian financial crisis and a 7.8 percent drop in early 2009 on the heels of the global financial rout.
It’s also the third consecutive quarter the local economy has declined, marking the longest recession stretch since 2009.
According to government data released on Monday, the JanuaryMarch GDP decline was mainly fueled by the continued weak performance in domestic and external demand, as the COVID-19 crisis severely disrupted a wide range of Hong Kong’s economic activities and supply chains in the region.
“Our economic situation is very challenging. We’re deep into recession,” Financial Secretary Paul Chan Mo-po said on Monday, noting the economy had worsened for the third successive quarter.
The city’s economy began shrinking from the third quarter of 2019 as the social unrest escalated.
Recession is widely defined as having negative economic growth for two consecutive quarters.
Chan said Hong Kong’s three economic development engines — consumption, investment and exports — have all stalled.
The fall in consumption widened sharply as people refrained from going out following the imposition of social distancing measures to curb the spread of the virus. Private consumption expenditures, believed to have been a key driver of the contraction, fell 10.2 percent in the first three months of this year.
Overall investment expenditures continued to see a sharp contraction as well, amid pessimistic business sentiment and sluggish construction activity.
Hong Kong’s total exports of goods, at the same time, had a visibly enlarged year-on-year fall in the first quarter, slumping 9.7 percent, mainly impacted by crippled regional supply chains and related trading activities.
The SAR is trying to get back on its feet as the coronavirus threat eases. As of Monday, the city had recorded no locally transmitted COVID-19 infections for 15 days in a row, with the tally standing at 1,040. A relaxation of some of the social distancing regulations, including lifting a ban on public gatherings of more than four people, as well as a phased reopening of businesses, may be on the way.
However, Chan warned that the pandemic is yet to be brought under complete control globally, and this will continue to affect exports, international travel and Hong Kong’s business investment.
“Going forward, for the second quarter, we believe that even if there’s improvement, it’ll be gradual and small,” he said, adding he expects Hong Kong to gradually emerge from recession by the end of the year.
Liao Qun, chief economist with China CITIC Bank International, forecast that Hong Kong’s economy will drop by a further 4.5 percent in the second quarter and 2.5 percent in the third quarter. GDP growth is expected to turn positive in the last quarter with a 5 percent year-on-year increase.
He predicted that the city’s GDP is likely to contract 2.8 percent for all of 2020. Chan had warned last week that the local economy would inevitably shrink by 4 to 7 percent this year.
To bolster hard-hit businesses and safeguard jobs, the SAR government has launched two economic stimulus rounds under the Anti-epidemic Fund. Along with a massive package of countercyclical measures unveiled in the 2020-21 budget, the total relief efforts cost HK$290 billion ($37.4 billion), equivalent to 9.5 percent of Hong Kong’s GDP.
Chan said the current stimulus package is quite sizeable, with many of the planned initiatives yet to be implemented, and the government will initially focus on these measures.