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Hong Kong’s recovery splutters as Covid’s return curbs spending

(ATF) Hong Kong’s economy was treading water by the end of 2020 as the reintroduction of Covid containment measures held back spending. 

And, according to research consultancy Capital Economics, unless the authorities bring the ongoing outbreak under control soon, the region’s recovery is at risk of reversing this quarter.

The current containment measures are the strictest so far, with restrictions from last summer reimposed alongside two rounds of localised lockdowns.

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GDP growth slowed from 2.8% quarter on quarter in Q3 to just 0.2% last quarter, and the pace of year-on-year contraction narrowed from -3.6% to -3.0% – but that was largely due to a weaker base for comparison after the protests in 2019. 

The key point was the weakness in private consumption which declined 7.6% year on year, only a slight improvement from the 8.2% year on year contraction in Q3. 

The breakdown for the rest of the economy, which was not directly affected by the new containment measures, was much healthier with investment growth turning positive in year-on-year terms for the first time since 2018, rising to 2.6% year on year after a 10.9% decline in Q3.


This was backed up by data from corporate and investment bank Natixis which showed a rapid rise in net exports, in line with the trend in mainland China. On the financial front, the HK economy was also bolstered by intense IPO activities as well as bond issuance, which helped attract large capital inflows. This had also lifted the Hang Seng Index since the end of September.

Going forward, hopes for sustained recovery largely hang on the success of an upcoming vaccination campaign.

But ongoing US-China tensions – and uncertainty related to how a game-changing national security law introduced last year could affect non-Chinese investment demand in the global financial hub – remain significant risks for recovery too, analysts say.


“The Hong Kong economy is expected to see positive growth for 2021 as a whole, but the economic situation in the first half of the year will remain challenging and the degree and speed of recovery is subject to a host of uncertainties, especially those about the pandemic situation,” a government spokesman said. 

The city’s economy was already reeling from often violent anti-government protests in 2019 and the US-China trade war before coronavirus hit.

Hong Kong’s unemployment rose to a 16-year high of 6.6% in October/December and is expected to rise further. Tourist arrivals for 2020 dropped 93.6%, compared with a 14.2% decline in 2019. 

But the government said the Chinese economy is set to strengthen further, and that will provide support for Hong Kong.

Also on ATF:

China could ditch 2021 GDP target over fears it’ll encourage debt 

Hong Kong breaks new ground with $2.5-billion green bond issuance

Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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