Hong Kong, one of the world’s financial hubs, is falling back into a second recession, illustrating the costs of loyalty to the zero-COVID policy.
According to figures released on August 1, Hong Kong’s gross domestic product shrank by 1.4% in the second quarter of 2022. At least, it is a narrower margin from the 3.9% year-on-year drop in the first quarter.
Bloomberg reported that Hong Kong’s economy fared worse than anticipated in the second quarter, and the city is no longer likely to grow by 1 to 2% this year as previously predicted. The final GDP data will be published on August 12.
Iris Pang, chief economist for Greater China at ING, expected the city’s GDP for the entire year to rise by 0.7%.
Pang said, “That is rather awful. Basically, that would be close to zero growth.”
This is a reversal from last year, when Hong Kong experienced an annual rise of 6.3%, recovering from its first recession in 2019 and 2020. At the time, the city’s economy was beset by occasional pro-democracy rallies and COVID-19.
The South China Morning Post reported that a city spokesman credits the downturn to slow exports and pandemic restrictions on businesses.
Hong Kong exports fell 8.6% year over year during the second quarter after falling 4.5% in the first three months. The spokesman warned of a bleak future coming from worsening global economic prospects such as inflation, the Ukraine war, and tightening monetary policy.
Likewise, experts are more concerned about Hong Kong’s steadfast adherence to strict pandemic controls.
ING’s chief economist Iris Pang said, “As long as the borders are not reopened, the flow of people will be under pressure and there will be limited investment.”
Like Pang, Ng believes Hong Kong can only regain its global trading hub status when it is reopened to the outside world, and zero-COVID curbs are left behind.