Hong Kong's economy in the first quarter suffered its deepest annual contraction on record, plunging 8.9% YoY as the coronavirus pandemic dealt a heavy blow to business activity in the city, already suffering from a collapse in tourism and retail industries due to months of anti-government protests in late 2019.
The Census and Statistics Department published 1Q GDP figures on Monday, revealing a decline in YoY growth trend for the third consecutive quarter. Preliminary data showed the 8.9% print was worst than 3Q98 when GDP plunged 8.3% during the Asian financial crisis, reported South China Morning Post. The final print is expected in late May.
Hong Kong Financial Secretary Paul Chan Mo-Po warned, "we are deep into recession" as the "economic situation is very challenging."
He said on a QoQ comparison, GDP had contracted for four consecutive quarters, indicative of a deep decline in the economy that could soon surpass what was seen in the Asian financial crisis when there were five quarters of consecutive declines.
"If we are able to work and unite together, not just to fight against the virus, but stimulate consumption and economic development, the economic situation will stabilise somewhat in the second quarter," he said.
"If the global epidemic situation improves, we will be able to come out of recession gradually towards the end of this year."
The city's key growth drivers - exports, retail, and investments, have been severely damaged because of the slump. Exports plunged 9.7% in 1Q YoY due to supply chain disruptions across Asia.
"The three locomotives broke down," he said. "Unemployment hit a new high in March, the worst in about nine years."
A government spokesperson on Monday said the recession deepened in 1Q20, as lockdowns crushed economic activity and supply chains. Virus-related shutdowns in the city have prevented mass protests, but the trade-off has broken tourism and retail industries.
"With the disease evolving into a pandemic in March, the economic fallout became even more severe," the spokesperson said.
On a QoQ basis, 1Q GDP shrank around 5.3%, the steepest decline since records began in 1974.
Beijing warned last week that Hong Kong was headed for the worst recession on record as full-year GDP forecasts were downgraded to between -4% to -7%. Estimates in February were roughly -1.5% contraction to +.50%, though the pandemic has undoubtedly created an economic shock that has roiled the city.
There are some signs that the virus spread is slowing in Asia. However, Iris Pang, Greater China economist at ING, warned that "social distancing will continue to hurt catering and shopping." She warned that more Hong Kong protests are expected "over the summer holidays."
The deepening downturn in the city will likely weigh on consumer spending habits throughout the year. Uncertainty over job prospects will also damage consumer sentiment as the city is highly exposed to global trade.
"Hong Kong's near-term economic outlook is subject to very high uncertainties, hinging crucially on the evolving global public health and economic situations," the government said in a statement.
Financial relief for business and households is expected to push the city's budget deficit this year to a record HK$276.6 billion ($35.68 billion), or about 9.5% of GDP.
The Hong Kong Retail Management Association recently warned that despite relief measures, nearly 25% of the 62,400 retail brick and mortar stores could close by the end of the year.
It's surprising that Hong Kong is experiencing one of the worst declines in the city's history. Meanwhile, China has already shown signs of a recovery. How is that even possible? Unless China is lying about its economic recovery...