Hong Kong’s financial system suffered its worst quarter on document, extending the primary recession in a decade because the coronavirus pandemic battered a metropolis already weakened by political unrest.
The financial system contracted 8.9% within the first quarter from year-ago ranges, in response to the federal government. The decline surpasses the earlier document of -8.3% within the third quarter of 1998 and a 7.8% contraction within the first quarter of 2009, the 2 worst readings in information again to 1974, in response to the Census and Statistics Division Hong Kong.
The most recent decline additionally marks the third straight quarterly contraction for Hong Kong, the longest such stretch because the aftermath of the worldwide monetary disaster in 2009. The financial system began shrinking from the third quarter of final yr amid violent avenue protests and a authorities crackdown, political components that stay unresolved.
“Our financial scenario may be very difficult, we’re deep into recession,” Monetary Secretary Paul Chan mentioned at a press convention after the info was launched. “Globally the epidemic is but to be put below full management. That can have an effect on our export, that may also have an effect on worldwide touring and enterprise funding. Going ahead, the second quarter, we consider that even when there may be enchancment, the development will probably be gradual and small.”
A 10.2% drop in non-public consumption from a yr earlier was a serious driver for the contraction, in response to the federal government report. Complete exports of products sank 9.7% within the interval, whereas exports of providers plummeted 37.8%. Authorities spending grew by 8.3% from a yr in the past.
Assuming the virus disaster improves, Hong Kong will come out of recession step by step towards the top of the yr, Chan mentioned. On Sunday, Chan warned of the worst full-year performance on record with a contraction of as a lot as 7%, after the financial system shrank 1.2% final yr.
“Financial actions are more likely to keep subdued within the close to time period if the specter of the pandemic continues,” a authorities spokesman mentioned within the launch. “Hong Kong’s near-term financial outlook is topic to very excessive uncertainties, hinging crucially on the evolving world public well being and financial conditions.”
Developments within the U.S.-China relationship, geopolitical tensions and world monetary market volatility additionally warrant continued consideration, the spokesman mentioned. Revised figures with a extra detailed breakdown are due on Could 15.
“The Hong Kong financial system can’t rely solely on fiscal stimulus to get again to regular,” mentioned Iris Pang, better China chief economist with ING Financial institution NV in Hong Kong. “Consumption will proceed to be unhealthy within the second quarter, although is probably not worse than the primary on a quarter-on-quarter foundation. That’s as a result of an additional hit on consumption from violent protests and social distancing measures.”
Whilst town prepares to ease some social distancing measures amid a gentle enchancment within the native outbreak scenario, the hit to world commerce and the specter of renewed anti-government unrest means exercise is more likely to stay depressed. Unemployment is rising with tourism, retail, transport and different industries decimated.
The prolonged downturn’s affect could be particularly seen throughout town’s struggling small and medium-sized companies, which have borne the brunt of the affect from protests since final yr and now the coronavirus.
“Hong Kong has been a risk-taking society relative to beginning a enterprise, however the scenario happening the final yr will create lengthy reminiscences in folks’s minds,” mentioned Todd Handcock, chairman of the Canadian Chamber of Commerce. “It’s been a really difficult yr for SMEs in Hong Kong. The unlucky actuality is a few of these won’t survive and others will battle for a really very long time.”
As of December, 340,000 SMEs accounted for greater than 98% of all enterprise models and employed some 1.Three million folks, or about 45% of the full excluding civil servants, in response to government data.
Sentiment amongst small companies is sitting close to a document low whereas these reporting a necessity for credit score jumped to an nearly four-year excessive of 8.8%, March government data present.
“If all of us fold, the unemployment ranges are going to skyrocket on this metropolis,” mentioned Bella Dobie, co-founder and managing director of Hong Kong branding and advertising and marketing agency Orijen. The agency has six full-time workers together with Dobie and has been in enterprise since 2000. “The financial system of Hong Kong has been struggling because the begin of the protests and Covid-19 is only a double whammy.”
The federal government has taken steps to deal with the looming employment disaster by way of a number of rounds of stimulus spending, most prominently by way of an HK$80 billion wage subsidy program that isn’t anticipated to start distribution till June.
These companies that do survive will doubtless emerge with smaller, leaner operations, with lasting implications on the broader financial system as jobs that when existed might not return. Complete employment within the metropolis shrank by a document 3.6% in March.
As of December, the variety of job vacancies within the non-public sector of Hong Kong totaled about 54,000, down 30% from a yr in the past, in response to authorities information. Vacancies in retail and lodging and meals providers plummeted 44% and 65% respectively.
The specter of protests resuming as soon as the virus fades and measures forbidding group gatherings ease may additionally additional prolong the ache for companies and the financial system.
“It’s concerning the enormous uncertainty of town’s future,” mentioned Alicia Garcia Herrero, chief Asia Pacific economist with Natixis SA. “Anyone who lives right here understands it, you don’t even know what will occur tomorrow.”
— With help by Alfred Liu
(Updates with feedback from Paul Chan and an economist.)
— to www.bloomberg.com