Hong Kong virus outbreak lowers economic outlook, analysts cut forecast

A woman wearing a protective mask in Hong Kong.

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Many economists have slashed their economic forecasts for Hong Kong as the semi-autonomous Chinese region experiences an increase in coronovirus cases.

Fluctuations in numbers forced the authorities to implement strict social-removal measures this week.

Hong Kong said on Wednesday that advance estimates showed a 9% drop in its economy in the second quarter compared to a year earlier. According to official figures, this is the fourth consecutive quarter of year-on-year contraction in the city.

The government said in a statement that the epidemic remains “a significant threat” to the global economy and the renewed spread at the local level emphasizes the “near-term outlook for domestic economic activity”.

He added, “However, once the local pandemic continues to recur and the external environment continues to improve, it is expected that Hong Kong’s economy will slowly recover for the rest of the year.”

Economists agreed that the rigorous socio-distortive measures imposed after the recent flare-up of cases would reduce any economic momentum. But some do not share the government’s view that a recovery could come this year.

Effect of stringent coronavirus measures

Economists at Consultancy Capital Economics forecast an 8% contraction in Hong Kong’s economy this year – close to doubling its previous projection of a 4.5% contraction.

Capital Economics’ latest downward revision is worse than the government’s official forecast for a 4% to 7% contraction in 2020.

“Until a few weeks ago, Hong Kong’s economy looked set to start recovering this quarter,” economists said in a Wednesday note, pointing to cash handouts of 10,000 Hong Kong dollars ($ 1,290) from the government After that set the lifting activity to help, is being discharged at the beginning of this month.

But stringent control measures “postponed the improvement in consumption, and put additional pressure on employment and income, reducing the boost from government cash,” he said.

In addition to Capital Economics, Citi also lowered its forecast for Hong Kong and predicted a full-year economic contraction of 6.3%, compared to 5.5% previously.

Iris Pang, chief economist at Greater China at Dutch bank ING, has expected new socio-distancing measures to stay for some time as previous waivers of sanctions may have contributed to the latest jump in cases.

Pang said in a note on Wednesday that it expects to bring Hong Kong’s economy to 10% in the third quarter and 5% in the fourth quarter – a full-year contraction of 8.3%.

“The Kovid-19 cases have increased in Hong Kong, and there may be many sources that are difficult to trace,” she said. “The government has once again tightened social reform measures since the outbreak, which the Health Department claimed could be due to the previous relaxation of social remediation measures.”

Hong Kong leader Carrie Lam warned this week that renewed outbreaks could affect the city’s health care facilities and cost of living. New measures imposed in the city include restrictions on the gathering of more than two people and dine-in services.

But some economists said that Hong Kong’s weak economic performance last year could help the city post better GDP numbers in the second half of this year.

The economy contracted in the third and fourth quarter of last year, underpinned by the US-China trade war and widespread pro-democracy protests.

Gary Ng, an economist at French investment bank Natixis, told CNBC’s “Squawk Box Asia” on Thursday that the economy could “pick up” from the second quarter to record a contraction of 5% to 6% in the second half of 2020. He said the full-year contraction would be brought down to around 7%.

“In the second half of the year, I expect that more fiscal measures targeting industries – particularly retail, catering, housing as well as construction – need to be implemented,” he said, explaining that Those sectors are a “major driver” in the current increased unemployment rate. ”


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