Hong Kong’s Economy Contracts Record 6.1% in Pandemic Year

(Bloomberg) -- Hong Kong's economy shrank by a record in 2020, with the global pandemic dragging down output in a city already reeling from massive political upheaval.

Gross domestic product fell 3% in the fourth quarter from a year earlier, resulting in a full-year decline of 6.1%, according to advance estimates from the Hong Kong Census and Statistics Department Friday. The median estimate in a Bloomberg survey of economists was for a 2.1% contraction in the fourth quarter and 6% for the whole of 2020.

Hong Kong hasn't posted back-to-back annual contractions in data going back to at least 1962. And the biggest contraction in GDP over that period was a 5.9% decline in 1998, when the city's economy was affected by both the Asian Financial Crisis and the handover to China.

Consumption and tourism-related sectors were particularly hard-hit by the pandemic last year while financial market activity “stayed robust,” the government said in the GDP report.

“The Hong Kong economy is expected to see positive growth for 2021 as a whole, but the economic situation in the first half of the year will remain challenging,” the report said. “Locally, the prospect of domestic economic activities depends critically on how fast the local epidemic situation can be contained.”

Even before the coronavirus hit, the city's economy was under stress following months of disruptive pro-democracy protests in 2019 that curbed spending and investment. Once the virus began spreading, travel bans brought tourism to a halt and social distancing restrictions put a further dent in spending. By the end of 2020, unemployment had surged to a 16-year high of 6.6%.

Virus outbreaks continue to weigh on the recovery, with the economy losing momentum in the fourth quarter after the government reimposed strict measures to control the spread of infections. GDP growth slowed to 0.2% last quarter compared with the previous three months.

“The next 18 months for me will be full of challenges,” Hong Kong's Chief Executive Carrie Lam said an interview with Bloomberg Thursday. “I need to deal with this pandemic, and then I need to stimulate the economy to create more jobs for the people of Hong Kong.”

Lam said the economy has a very good chance of achieving positive growth this year, subject to the course of the pandemic. She pointed to an improvement in exports and imports in the latter half of last year as signs of a recovery and said spending at retailers and restaurants will pick up once virus restrictions are lifted.

Revised fourth-quarter and full-year figures as well as growth forecasts for 2021 will be released with the upcoming budget on Feb. 24.

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