Gross domestic product fell at an annualized 8.9 percent year over year in the first quarter as stay-at-home orders aimed at slowing the spread of COVID-19 caused a sharp drop in tourism and domestic spending. The economy shrank by 5.3 percent quarter over quarter, also the steepest drop since recordkeeping began in 1974.
“The economic recession deepened in Hong Kong in the first quarter of 2020, as the threat of COVID-19 seriously disrupted a wide range of local economic activities and supply chains in the region,” Hong Kong’s Census and Statistics Department said in a statement.
COVID-19 has infected at least 1,039 people and killed six in Hong Kong, according to data from Johns Hopkins University and Medicine.
Travel between Mainland China and Hong Kong was restricted in early February, and social-distancing measures were quickly implemented. Hong Kong never ordered a full lockdown. As a result, the number of new daily cases peaked at 65 and has fallen back to nearly zero over the past few weeks.
Tourist arrivals from Mainland China fell 99.3 percent in March to 30,370 people, down from nearly 4.5 million a year prior. China accounts for about 76 percent of tourism to Hong Kong, according to the government.
“These early interventions succeeded in slowing the spread of the virus,” wrote Julian Evans-Pritchard, senior China economist at the research firm Capital Economics. “But this was at the expense of a deep slump in retails sales and private consumption in the coming months, which makes up over two-thirds of the city’s GDP.”
Retail sales plunged by more than 30 percent in the first quarter while private consumption fell by 10.2 percent.
The sharp economic contraction in the January through March period extended the city’s recession to a fourth quarter. Hong Kong’s economy slowed down sharply in the middle of 2019 as pro-democracy protests and the U.S.-China trade war dragged down growth.
Evans-Pritchard says that while Hong Kong’s economy will likely see some improvement due to the city’s ability to contain the spread of the virus, any rebound will be sluggish due to rising unemployment and low levels of tourism in the months ahead.
“Any recovery will be tepid and held back by rising unemployment, which reached a decade high in March,” wrote Evans-Pritchard. “What’s more, tourism is likely to remain in the doldrums for a while and trade flows are set to weaken even further this quarter given the widening global shutdowns.”