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Pedestrians look at a jewellery display in a Chow Sang Sang Holdings International store window in Hong Kong on April 30 2022. Picture: BLOOMBERG/CHAN LONG HEI
Pedestrians look at a jewellery display in a Chow Sang Sang Holdings International store window in Hong Kong on April 30 2022. Picture: BLOOMBERG/CHAN LONG HEI

Hong Kong’s economy contracted in last quarter for the first time in more than a year as local restrictions to curb Covid hit activity and China’s own Omicron outbreak disrupted trade.

GDP fell 4% in the January-to-March period from a year earlier, according to advance estimates released by the government on Tuesday. That’s worse than a median estimate of a 1.3% contraction in a Bloomberg survey. It was Hong Kong’s first contraction since the last quarter of 2020, when the economy was in a historic two-year recession.

There were signs of deep economic damage in the first three months of the year, with retail sales collapsing 14% in February and exports plunging 8.9% in March. The city imposed strict social restrictions during the quarter — including a ban on dining-in after 6pm and closing gyms and beauty salons — to battle a coronavirus wave that killed thousands and infected more than 1-million people. 

The Asian finance hub is now slowly reopening, meaning the first-quarter slump could mark the low point in the growth cycle. On Tuesday, the government accelerated reopening plans, and will on Thursday allow eight people to eat together, up from four previously, along with other easing measures. Two weeks later, dining-in hours will be extended from 10pm until midnight, CEO Carrie Lam said at a briefing. 

However, much will depend on China’s own outbreak and Covid controls, which have made it difficult to transport goods to and from the mainland. Exports from Hong Kong to China dropped 12.8% in March from a year ago, according to official figures.

On top of that, Hong Kong is facing higher interest rates and pressure on its currency. The US Federal Reserve is poised to raise interest rates again this week, and the Hong Kong Monetary Authority will need to follow suit given the local currency’s peg to the US dollar. 

Given Hong Kong’s reliance on tourism, a stronger recovery in the economy will rest on a broader reopening of its borders. Some easing of travel restrictions have received only a lukewarm reception from business groups, which say much more needs to be done if the city wants to remain an internationally competitive financial hub.

Beijing’s adherence to Covid Zero means Hong Kong can’t remove all restrictions. Those coming into the city are still subjected to a range of tests and hotel isolation.

Bloomberg. More stories like this are available on bloomberg.com

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