Zero Covid rules hammer economy in Hong Kong

HONG KONG has been plunged into a year of economic decline after zero Covid restrictions and a global trade slump took their toll on the former British territory.

In a further sign that some of the world’s toughest pandemic travel rules are threatening its status as an international financial hub, official data showed that Hong Kong’s economy was 1.4pc smaller in the three months to June than it had been a year earlier.

This followed an annual decline of 3.9pc in the first quarter of the year.

A government spokesman said a recovery in consumer spending had suffered from a crackdown on travel, shopping and socialising to prevent the spread of coronavirus.

Trade was the biggest drag on growth, as exports fell 7.7pc in the second quarter on an annual basis, according to Hong Kong’s Census and Statistics department.

Many economists expect Hong Kong to barely grow this year.

Lloyd Chan, senior economist at Oxford Economics, said the consultancy was likely to revise down its current estimate of 0.1pc growth for 2022.

Sheana Yue, an economist at Capital Economics, said the city faced “significant” challenges amid rising Covid cases, cooling global demand and a decline in tourism as its border with the mainland remains indefinitely closed.

Businesses are already moving staff out of Hong Kong. Earlier this year, the European Chamber of Commerce in Hong Kong warned nearly half of European companies planned to fully or partially shift out of the city. Higher global interest rates are also likely to weigh on investment. Interest rates have run in lockstep with the US Federal Reserve ever since its currency was pegged to the dollar in 1983. Ms Yue said: “That’s a particular challenge to the property sector: higher mortgage rates will further strain confidence.”

Hong Kong has also only just lifted strict flight controls if a small number of passengers tested positive. Last week, China also signalled it may miss its annual economic growth target of 5.5pc, as the world’s second largest economy sticks to its approach of tightening restrictions if outbreaks occur.

1.4pc

Official data show Hong Kong economy was smaller in the three months to June than it had been a year earlier