Coronavirus: Fitch downgrades Hong Kong as pandemic poses ‘economic shock’
- Government says the move does not give ‘due recognition to the strong fundamentals underpinning the local economy and financial market’
- City’s rating lowered to AA-minus from AA with a stable outlook, with real GDP expected to fall by 5 per cent
Fitch Ratings has downgraded Hong Kong as an issuer of long-term, foreign currency debt, saying the city is facing a “second major shock” from the coronavirus after prolonged social unrest last year.
Hong Kong’s rating was lowered to AA-minus from AA with a stable outlook, with real gross domestic product expected to fall by 5 per cent this year after a 1.2 per cent decline in 2019, Fitch said in a report on Monday.
“Efforts to contain the spread of the virus locally appear to be gaining traction, but risks to our forecast remain to the downside and dependent on the evolution of the pandemic globally, given Hong Kong’s status as a small, open economy,” Fitch analysts wrote.
It downgraded the city’s rating to its lowest level since 2007, putting it below that of markets such as Macau and on a par with Britain.
We must stress that, despite the unprecedented challenges, Hong Kong’s institutional strengths and core competitiveness are unscathed
The agency also said the downgrade reflected its view that Hong Kong’s gradual integration into mainland China’s national governance system and increased economic, financial and sociopolitical links to the country justified a closer alignment of their respective sovereign ratings.
“These established trends are exemplified by the central authorities taking a more vocal role in Hong Kong affairs than at any time since the 1997 handover,” it said.
The Hong Kong government said it was “disappointed” with Fitch’s assessment.
“The decision reflects a disproportionate emphasis on prevailing sociopolitical issues without giving due recognition to the strong fundamentals underpinning the local economy and financial market,” it said in a statement on Monday.
“The view that Hong Kong’s rising economic and financial ties with the mainland are credit-negative is also ungrounded,” it said, noting that the city would be in a position to benefit from the mainland’s strong economic growth.
Hong Kong’s economy has struggled under the pandemic, which came hard on the heels of months of political unrest.
Shops and businesses buckled as retail sales plummeted the most on record in February amid growing travel restrictions and social-distancing measures.
‘Expect jobless rate to rise for 6th straight month amid coronavirus pandemic’
Consumption in the city has been severely curtailed as mainland tourists stopped visiting last year and residents have been staying home to avoid infection. The jobless rate rose for a sixth consecutive month in March to the highest level since October 2010.
Efforts to contain the virus’ spread have led to a contraction in economic activity that has prompted policymakers to announce a big stimulus package in what Fitch said was the most expansionary budget in the city’s history.
“We must stress that, despite the unprecedented challenges, Hong Kong’s institutional strengths and core competitiveness are unscathed,” the government statement said.
