Hong Kong’s economy was already in recession when the pandemic hit in January. Six months of running battles between pro-democracy campaigners and local government had deterred many of the visitors who fuel the lucrative tourism industry, while the threat of violence on the streets and closures of shops had sent retail sales down nearly a quarter on the previous year.
With much of Asia shut down by coronavirus restrictions during the winter months, there was little expectation of a recovery until the spring, when the level of infections fell to almost zero across mainland China and most of the rest of the region, and the measures could be eased.
Some analysts expected the recovery to be strong. Hong Kong is a hub for financial and professional services in competition with Singapore. Many workers could operate from home and maintain the same level of activity.
But Hong Kong’s dependence on trade from India, the Philippines and the US, where the virus continues to flourish, left it more vulnerable to a second spike, and in the summer cases began to rise again. The flare-up triggered new restrictions on households and businesses and an immediate downturn in business activity.
Last month, the territory’s government said GDP in the second quarter of this year was down 9%, after a 9.1% downturn in the first quarter.
In May, the International Monetary Fund had said it expected Hong Kong to recover in the second half of the year and predicted that its GDP would drop just 4.8% during 2020.
Retail sales data due out this week will provide a clue about how long the recession will last and whether a rebound in shopping is likely, though the widespread reluctance among consumers across China to spend in the way they did in previous years is expected to keep sales figures subdued.
A brighter picture has emerged for those involved in the finance industry, which remains Hong Kong’s largest business activity, as the stock market has followed the same trajectory as the US markets to reach all-time highs this year.
However, analysts have become concerned in recent weeks that the summer increase in infections and the recent collapse in profits and scandal over suspicious financial transfers at HSBC, which has a large presence in Hong Kong, could send the market into reverse. So far the Hang Seng index has fallen to 23,275, having climbed to a high of 26,669 in July.