Economists have warned of a looming recession in Hong Kong as the government maintains an “unsustainable” zero-Covid approach.
The Chinese city’s economy is struggling as authorities have failed to contain the biggest Covid-19 outbreak yet.
More than 54,000 cases have been reported in the city of 7.5 million people since this latest fifth wave of infections began in January, according to official data. Just 12,000 had been reported in total until December 31, 2o21.
“GDP will fall 3% in 2022,” said a Capital Economics note entitled ”Lockdown to tip Hong Kong into a deep recession” by economists Sheana Yue and Julian Evans-Pritchard. “Assuming that the outbreak is contained by the middle of the year, then activity should rebound during the second half as restrictions are eased.”
Hong Kong’s economy was expected by the government to experience 2% to 3.5% growth this year in a prediction that some analysts said was optimistic.
Fitch Ratings, Goldman Sachs and Morgan Stanley have all slashed their estimates for the city’s economic growth in 2022.
The government is turning on the spending taps, with Tuesday’s budget promising HK$10,000 ($1,300) coupons for every resident and a costly mass testing exercise for the entire population.
“Fighting the epidemic is our overriding mission at present,” Financial Secretary Paul Chan said in his annual budget speech. “The resources allocated for [pandemic control measures] … alone involve more than HK$54 billion.
Stringent social distancing measures have closed businesses such as gyms and hair salons to shut for weeks – possibly even months.
Summer Arrives Early
A ban has been imposed on dine-in service at restaurants after 6pm and schools have been ordered to take summer holidays in March. The restrictions will last until April at the earliest.
Hong Kong’s healthcare system is overwhelmed with the government insisting on quarantining thousands of people infected every day. The Centre for Health Protection graphic above shows the surge in cases since the end of January.
Kevin Lai, Asia chief economist at Daiwa Capital Markets, said the approach was “unsustainable,” warning that future infections were inevitable.
“You spend so much money on maintaining zero-Covid … and when the next wave of infections comes, you have to spend tens of billions again, sacrificing the city’s economy,” he said.
Hong Kong leaders, under pressure from the central government in Beijing, appear to be gradually preparing the population for a Mainland-style lockdown in which residents are essentially forbidden from leaving their homes.
Pro-China media have hinted that the People’s Liberation Army or other Mainland agencies would be involved in enforcing the lockdown and testing residents.
However, Hong Kong chief executive Carrie Lam on Tuesday ruled out a “wholesale, prolonged” citywide lockdown and denied Chinese officials had given her directions in terms of locking down the city.
- George Russell
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