The Hong Kong government has downgraded its full-year forecast for the city’s economic growth to 1-2 per cent for 2022 from 2-3.5 per cent previously, reflecting the havoc caused by the fifth wave of coronavirus cases in the first quarter. Conceding the overall performance was worse than expected, government economist Adolph Leung Wing-sing on Friday said gross domestic product shrank 4 per cent year on year in the first quarter under the combined effects of slower global demand, disruptions in cross-border trade and the pandemic. Hong Kong to ‘inevitably’ cut 2022 growth forecast, finance chief warns Hong Kong’s stock market was volatile between January and March while the property sector remained soft and prices fell further, he said. “The worsened global economic prospects may continue to weigh on Hong Kong’s export performance,” Leung said, pointing to the ongoing conflict in Ukraine as keeping international energy and commodity prices elevated, aggravating supply chain and transport disruptions, and dampening economic sentiment. As a result, he raised concerns about rising inflation, which could trigger key central banks to tighten monetary policy, in turn curbing economic growth. Leung saw a threat to economic growth and property prices from interest rate rises, which were expected to jump faster and with greater magnitude in coming months. After the Monetary Authority, the city’s de facto central bank, raised the base lending rate a week ago by 50 basis points to 1.25 per cent – the steepest rise in 20 years – following a similar move by the US Federal Reserve, the Hong Kong dollar weakened this week amid capital outflows. The authority stepped into the currency market for the third time in two days on Friday to buy the Hong Kong dollar, bringing its support to US$1.08 billion in total. “Economic activities should show some revival going forward in tandem with the receding local epidemic and progressive relaxation of social-distancing measures,” Leung said. He said a fresh round of consumption vouchers, an employment support scheme and unemployment relief measures would support domestic demand. On a quarterly basis, GDP fell 3 per cent in the first three months. This was the first contraction since the fourth quarter of 2020. In 2021, GDP jumped 6.4 per cent after shrinking 6.5 per cent a year earlier. Hong Kong was engulfed by a raging fifth wave of infections from early January, bringing the city to a standstill over the entire first quarter, with case numbers only beginning to fall late last month. The government, which is following a “zero-Covid” policy, tightened social-distancing measures in a bid to tame the outbreak, even bringing forward schools’ summer holiday. Cathay Pacific chairman says Hong Kong ‘falling behind’ as world opens up The curbs included no evening dine-in services at restaurants and a maximum of two diners per table during the day, and the closure of bars and pubs, and entertainment premises such as cinemas, gyms and beauty salons. A flight ban was also imposed on nine Covid-hit countries. The government only began to unwind the curbs gradually from April 21. One of the city’s pillar industries, tourism, has been paralysed for more than two years due to stringent quarantine requirements upon entering the city. The first-quarter economic performance was so poor some economists downgraded their full-year forecast. DBS Bank China and Hong Kong economist Samuel Tse lowered his forecast to 1.7 per cent growth for 2022 from a 2.4 per cent increase previously. Daiwa Capital Markets’ Asia ex-Japan chief economist Kevin Lai cut his forecast to a contraction of 0.5 per cent from 1.8 per cent growth previously. It was downgraded for the second time in two weeks from a previous 2.3 per cent rise. Leung, the government economist, said inflation remained mild in Hong Kong, but it could disguise higher prices on certain commodities such as food, clothing and footwear. Still, the government maintained its full-year forecast for underlying inflation to remain at 2 per cent and headline consumer price inflation at 2.1 per cent. In the first quarter, underlying inflation jumped to 1.6 per cent from 1.2 per cent in the preceding three months. Housewife Ann Yeung, 65, who was shopping at Bowrington Road Market in Causeway Bay on Friday, said groceries had become more unaffordable for her in the past year. She spends around HK$300 a week on groceries for her family of three. “Vegetable prices have definitely increased more than 20 per cent, even though it’s better now than in March. I now buy fewer vegetables,” she said, adding that her family had switched to eating takeaway food on most nights as it was more affordable and convenient than cooking at home.