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Hong Kong’s GDP estimates were released on Wednesday to reveal the economic performance of the city was even worse than many feared. Photo: Sun Yeung

Hong Kong’s coronavirus-ravaged economy shrinks 9 per cent in second quarter

  • Another major slump in gross domestic product recorded in city stricken by Covid-19 crisis
  • Highest ever year-on-year decline of 9.1 per cent posted earlier this year

Hong Kong’s economy contracted 9 per cent in the second quarter, a worse-than-expected slump during the coronavirus crisis which falls just short of the record year-on-year decline set earlier in 2020.

In the government’s advance estimates revealed on Wednesday, gross domestic product (GDP) shrank over the year for the fourth straight quarter, in another sharp drop that has prompted economists to drastically downgrade their forecasts for the coming months.

“Covid is a monster that eats economic growth,” said ING Greater China economist Iris Pang, who predicts an even more severe reduction in output in the next quarter.

The fall announced on Wednesday is similar to the revised 9.1 per cent drop recorded for the first three months of this year compared with the same period in 2019.

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That was Hong Kong’s steepest decline in a single quarter since records began in 1974, eclipsing the previous 8.3 per cent low posted in the third quarter of 1998 during the Asian financial crisis.

A government spokesman said overall economic conditions in the city were very weak in the second quarter of 2020, as the Covid-19 crisis continued to severely hit global and local activities.

“The Covid-19 pandemic will remain a key threat to the global economic outlook,” the spokesman said.

“Locally, the recent surge in Covid-19 cases has clouded the near-term outlook for domestic economic activity.

“Nonetheless, once the local epidemic is contained again and the external environment continues to improve, the Hong Kong economy hopefully will gradually recover in the rest of the year.”

During the second quarter of 2020, Hong Kong was at a near standstill as the coronavirus spread across the world, with its borders closed at all but three checkpoints.

For about of half of the three months between April and June, schools were closed, workers stayed away from the office, and social-distancing rules limited dining services at restaurants and public gatherings.

Amid the global lockdown, tourist arrivals were down nearly 100 per cent in the quarter from the same period last year.

The coronavirus continues to cast a dark cloud over economic activity in Hong Kong this year. Photo: Felix Wong

Carie Li Ruofan, an economist at OCBC Wing Hang Bank, said the 9 per cent contraction was far worse than her estimate of 8.3 per cent, with the city's performance dragged down by weaker levels of spending than expected.

Private consumption expenditure, a key component of GDP measuring consumer spending on goods and services, tumbled 14.5 per cent in the second quarter from a year earlier, a deterioration from the 10.6 per cent decline in the first quarter.

“This is worrying because the [government’s HK$290 billion] relief measures started to take effect in June, but its impact was not yet reflected,” she said.

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“The third wave [of the epidemic] starting in July could further damage shoppers’ desire to spend and investor confidence.”

Li added that she would downgrade her full-year GDP forecast to a 6 per cent decline on 2019, from the 5.5 per cent contraction she previously estimated.

The government anticipated that full-year GDP would shrink by anywhere between 4 and 7 per cent.

Pang, from the ING bank, downgraded her third quarter forecast for the city's GDP to a 10 per cent decline year-on-year, from the 0.7 per cent contraction she predicted three months ago.

For the full-year, she expected GDP to shrink 8.3 per cent instead of slumping the 4.1 per cent she previously forecast.

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“The direct impact is a big hit to catering businesses, especially the small ones that have little flexibility when it comes to takeaways,” she said.

"Even if restaurants are able to arrange food deliveries, they still have to pay high rents. The economy could be even worse if there is no further help from the government, as the unemployment rate is expected to rise.”

Pang estimates the jobless rate will swell to 8 per cent between July and September from the 15-year high of 6.2 per cent between April and June.

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While there was a three-week lull in June without locally transmitted cases, the city has been engulfed in an even bigger health crisis since the beginning of July.

The number of new local infections recorded daily jumped by more than 100 for the eighth day in a row on Wednesday, pushing the city’s case tally beyond 3,000.

The government is due to reveal the finalised GDP figures for the second quarter on August 14.

This article appeared in the South China Morning Post print edition as: GDP shrinks 9pc as virus takes toll
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