Hong Kong economy shrinks record 8.9% in first quarter

Hong Kong suffered its worst quarterly contraction since modern records began, official figures showed Monday, as the coronavirus outbreak hammered an economy already mired in recession from political unrest and trade war woes.

The financial hub is now experiencing its third-straight quarter of negative growth — its longest financial downturn since the aftermath of the 2008 global financial crash. 

Months of debilitating street protests and the tit-for-tat tariff battle between Washington and Beijing had weighed on the local economy for months before the pandemic helped push the city deeper into recession.

Advance figures released Monday showed an 8.9 percent on-year contraction in the first quarter — the worst decline since the government began compiling data in 1974.

A bigger fall than during the Asian financial crisis in 1998

The result was a bigger fall than the 8.3 percent recorded during the Asian financial crisis in 1998 and the 7.8 percent seen in early 2009.

“Faced with a collapse in global demand, Hong Kong’s small, open economy is taking a severe hit,” Bloomberg Intelligence economist Qian Wan said in a note to clients ahead of the results.

The figures were worse than most projections, even though the city has made impressive headway against the coronavirus outbreak. 

Despite its proximity and links with the Chinese mainland, confirmed infections have been kept to around 1,000 with just six deaths. 

The financial hub has managed to largely end local transmissions of the disease, with almost all new cases coming from people returning to the city from overseas who are quickly quarantined. 

Officials are beginning to ease some social distancing measures, in a move that will boost the local economy. 

Political uncertainty

But in an international finance hub so dependent on the rest of the world, plenty of headwinds remain as the coronavirus continues to wreak economic chaos elsewhere.

“Even if there is improvement, it will be gradual and small,” said financial secretary Paul Chan, who estimates the economy will contract between four to seven percent this year.

There is also little sign of an end to the political uncertainty hanging over Hong Kong in the aftermath of last year’s civil unrest. 

Despite vowing to heal divides at the start of the year, the city’s government has not unveiled any policies aimed at reconciliation, while Beijing has ramped up its rhetoric against the local pro-democracy movement.

Protesters being prosecuted

There has also been little mood for compromise among protesters who largely organise online and the few figures from the movement with a public profile are now being prosecuted.

As a result, political tensions are rising just as the city moves towards ending some anti-virus movement restrictions.

In the last fortnight small protests have begun bubbling up again after four months of comparative clam imposed by the pandemic.

More global economic damage from the virus and a resurgence of local unrest would both result in “major downside risks” to Hong Kong’s economy, said Oxford Economics senior economist Tommy Wu.