Hong Kong economy shows first signs of revival since protests began

HONG KONG (BLOOMBERG) – Hong Kong’s economy is showing the first signs of emerging from a crippling recession sparked by political unrest last year and deepened by the global pandemic.

After more than a year of weakness in multiple economic indicators, data this week showed exports from the Asian financial hub surged the most in almost two years in September, fueled by a 17 per cent increase in shipments to mainland China. Advance third-quarter economic growth figures to be released today are forecast to show quarter-on-quarter growth of 0.7 per cent, according to the median forecast of economists surveyed by Bloomberg.

That would mark the first time the measure has risen since before the start of anti-government protests last year, as a third wave of virus infections subsided last month. The economy has been in its longest recession since the tumultuous period from 1997 to 1998 that included the handover to China and the Asia financial crisis.

Still, the recovery is nascent and Hong Kong will need more robust commerce and tourism to sustain a return to economic growth, economists say. On a year-on-year basis, the city’s economy is forecast to extend declines for a fifth quarter.

“Hong Kong needs to see its border reopening with mainland China before the city can benefit from the rapid recovery there,” said Tommy Wu, senior economist with Oxford Economics in Hong Kong.

Hong Kong is among other economies in Asia including Singapore and South Korea that are starting to recover from months of anti-virus measures. Removing border restrictions with the mainland would benefit industries beyond tourism – such as trade and finance – making it the government’s most urgent task alongside containing the virus, said Dong Chen, senior Asia economist with Pictet Wealth Management.

“Opening the border needs to be a government priority,” Mr Chen said.

Hong Kong and Singapore have announced plans to create a travel bubble between the two cities that is targeted to launch next month, Chief Executive Carrie Lam said at a press briefing. People in both cities would be exempted from compulsory quarantine, replaced by coronavirus testing. The pact joins efforts in several markets in the region to loosen travel restrictions.

In an Oct 25 blog post Financial Secretary Paul Chan said if the flow of people and commerce between Hong Kong and mainland China is safely restored, the city can be “revitalized substantially” even if the global economy remains constrained.

‘Main force’

“The sustained rapid economic recovery in the mainland can be said to be the main force supporting the Hong Kong economy,” Mr Chan said. “Only by effectively controlling the epidemic and thoroughly cleaning up local infection cases can we truly create an environment conducive to economic recovery.”

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The government is pursuing a law that would make Covid-19 tests mandatory for some groups even as it slowly eases virus-related restrictions, Ms Lam said at the briefing. Hong Kong is ready to re-open the border with China from a technical perspective, but it requires mutual consent, she said.

Meanwhile, Hong Kong’s efforts to stimulate the economy remain under scrutiny. The city has announced more than HK$310 billion (S$54.7 billion) in relief this year, yet the prolonged recession has led to shuttered storefronts and unemployment at an almost 16-year high of 6.4 per cent as of September. Joblessness is likely to rise further after Cathay Pacific Airways last week said it will slash more than 5,000 jobs and close a regional carrier.

Hong Kong, along with the rest of the world, must reckon with the human cost of the pandemic, said Iris Pang, greater China chief economist with ING Bank NV.

“Certainly the economy will benefit from opening the border,” she said. “But the loss of human lives, in terms of economic theory, hurts the long-term growth of an economy.”

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