© Reuters. FILE PHOTO: A man walks past buildings at a business district in Hong Kong, China, November 4, 2019. REUTERS/Kim Kyung-Hoon
By Donny Kwok and Twinnie Siu
HONG KONG (Reuters) – Hong Kong’s economy contracted in the first quarter of this year as the city imposed its most stringent restrictions to curb an outbreak of COVID-19 that has battered business, led to an exodus of people and overshadowed the outlook for growth.
The financial centre’s economy shrank 4% in the first quarter from a year earlier, breaking four quarters of growth, amid weak performance in both domestic and external demand, the government said. That compares with revised growth of 4.7% in the fourth quarter and forecasts for a 1.2% decline by DBS and 1.3% drop by Standard Chartered (OTC:) for the first quarter.
“The global economy will continue to face significant challenges in the near term,” a government spokesman said in a statement, adding that improving the local epidemic situation and government support measures should help lift domestic demand for the remainder of the year.
Hong Kong’s borders have essentially been closed since early 2020, with few flights landing and hotel quarantine for arrivals damping demand, as the city follows mainland China in implementing a “dynamic zero” coronavirus strategy that aims to curb all outbreaks.
“Timing of re-opening of border will hinge crucially on the COVID situation in both China and Hong Kong,” said Samuel Tse, an economist at DBS Bank. “Our most optimistic assumption is that it will gradually reopen around end 3Q-mid 4Q.”
On a quarterly basis, the economy shrank by a seasonally adjusted 2.9% in January-March.
Hong Kong’s economy is expected to grow 2.0% to 3.5% this year after expanding 6.4% in 2021, with underlying inflation at 2%.
Hong Kong allowed non-residents to enter the financial hub from May for the first time in more than two years as the number of daily COVID-19 infections fell, a small step in unwinding stringent restrictions which have turned the city into one of the world’s most isolated places.