London Daily

Focus on the big picture.
Saturday, May 31, 2025

The Perfect Storm of Economic Risks on Hong Kong’s Horizon

The Perfect Storm of Economic Risks on Hong Kong’s Horizon

In 2019 there was the escalating U.S.-China trade war, which squeezed exports. Then came violent protests beginning mid-year, with street-fighting between police and protesters driving away tourists and shoppers, hurting the services industries, and tipping the economy into its first contraction in a decade.

Now, as Hong Kong awaits confirmation of an annual economic contraction with the fourth-quarter reading due Monday, China’s deadly virus outbreak threatens to extend that losing streak into 2020. The economy was already in recession in 2019, shrinking in the second and third quarters, and that is forecast to have continued in the final three months of the year.


Recession Return


Hong Kong's economic contraction is projected to deepen in fourth quarter

Source: Hong Kong Census and Statistics Department, Bloomberg survey

Economists forecast expect a 3.9% contraction in the final three months of 2019 compared to a year earlier, the worst since early 2009, according to the median of estimates compiled by Bloomberg.

“This is really the last nail in the coffin of the Hong Kong economy,” said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA. “This time around even the financial sector may be affected, and I doubt protests will calm down.”

The Virus


Given the developing nature of the coronavirus outbreak in mainland China and elsewhere, forecasting the impact on Hong Kong is especially difficult. But combining that with longstanding issues such as the expensive property market produces one of the more difficult outlooks for Hong Kong since the 1997 handover.

Drawing on experience from the 2003 SARS epidemic in the city, Aries Wong, lecturer at Hong Kong Baptist University’s School of Business, estimates visitor arrivals from mainland China could drop by an additional 10 to 20 percentage points, and annual economic growth could be cut by 0.5 percentage point if the outbreak subsides by July -- increasing to 1 percentage point if it continues for the whole year.

“Surely the virus is going to add a bit more pressure on tourism and retail,” Wong said.

The negative effects may be limited as the key affected sectors were already hit hard last year, according to Iris Pang, an economist with ING Bank NV, although that may not be much comfort to shopkeepers or restaurant owners.

“The impacts are negative on retailers, restaurants, gyms, swimming pools, mass transportation and inbound and outbound tourism activities,” she said. “But as retailers have been hit by the violent protests, the marginal impact from the coronavirus should be moderate.”


Anti-Government Protests


Hong Kong’s biggest crisis of 2019 hasn’t gone away. The impasse between protesters and the government remains unresolved, and the virus from the mainland will add to that mistrust and create new avenues for conflict, Wong said.

The government halted plans to use a housing estate as a possible coronavirus quarantine facility after violent protests at the site. Demonstrators blocked roads, damaged traffic lights and set fire to a building lobby -- actions similar to those during the protests last year.

“The downside risk from the political unrest will likely persist for a while,” said Tommy Wu, senior economist with Oxford Economics. “More protests could happen again after the virus outbreak fades, maybe later in the second quarter.”


Trade


While phase one of the U.S.-China trade deal brings some clarity to business on both sides, the deal also increased uncertainty for Hong Kong, which snapped a 13-month streak of export declines in December.

Even if there’s an uptick in trade between the U.S. and China, Hong Kong might not benefit as it has in the past, with reports from late last year that China was considering re-routing trade that currently passes through Hong Kong to mainland ports to help meet its obligations under the deal.

Any upside to be gained from a rebound in trade will be tempered by the damage wrought to China by the virus, especially if the disruption to industrial output and trade from efforts to contain the virus continue or worsen.

“The virus outbreak is a significant downside risk to China’s growth, and that will feed through to Hong Kong as well – whether it is through trade, financial markets, or retail and tourism,” Wu said.


Wild Cards


Hong Kong’s property and financial markets have stayed resilient through the recession and ongoing protests. A pronounced downturn in either of these areas may hint at a further loss of confidence in the wider economy.

The city’s longstanding currency peg is also often the subject of speculation. However, it’s unlikely the Hong Kong Monetary Authority will tinker with its existing policy as it would create uncertainty outweighing “any positive effect of a devaluation” Wong said.

“During bad times, we don’t expect the HKMA to experiment with anything about the currency peg,” said ING’s Pang. “Who dares to take this risk?”

Newsletter

Related Articles

0:00
0:00
Close
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
White House Press Secretary Criticizes Harvard Funding, Advocates for Vocational Training
France to Implement Nationwide Smoking Ban in Outdoor Spaces Frequented by Children
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
U.S. Justice Department Reduces American Bar Association's Role in Judicial Nominations
U.S. Department of Energy Unveils 'Doudna' Supercomputer to Advance AI Research
U.S. SEC Dismisses Lawsuit Against Binance Amid Regulatory Shift
Alcohol Industry Faces Increased Scrutiny Amid Health Concerns
Italy Faces Population Decline Amid Youth Emigration
U.S. Goods Imports Plunge Nearly 20% Amid Tariff Disruptions
OpenAI Faces Competition from Cheaper AI Rivals
Foreign Tax Provision in U.S. Budget Bill Alarms Investors
Trump Accuses China of Violating Trade Agreement
Gerry Adams Wins Libel Case Against BBC
Russia Accuses Serbia of Supplying Arms to Ukraine
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
Chinese Woman Dies After Being Forced to Visit Bank Despite Critical Illness
President Trump Grants Full Pardons to Reality TV Stars Todd and Julie Chrisley
Texas Enacts App Store Accountability Act Mandating Age Verification
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Vatican Calls for Sustainable Tourism in 2025 Message
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Trump Threatens 25% Tariff on iPhones Amid Dispute with Apple CEO
Putin's Helicopter Reportedly Targeted by Ukrainian Drones
Liverpool Car Ramming Incident Leaves Multiple Injured
Australia Faces Immigration Debate Following Labor Party Victory
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
Macron Dismisses Viral Video of Wife's Gesture as Playful Banter
Cleveland Clinic Study Questions Effectiveness of Recent Flu Vaccine
Netanyahu Accuses Starmer of Siding with Hamas
Junior Doctors Threaten Strike Over 4% Pay Offer
Labour MPs Urge Chancellor to Tax Wealthy Over Cutting Welfare
Publication of UK Child Poverty Strategy Delayed Until Autumn
France Detains UK Fishing Vessel Amid Post-Brexit Tensions
Calls Grow to Resume Syrian Asylum Claims in UK
Nigel Farage Pledges to Reinstate Winter Fuel Payments
Boris and Carrie Johnson Welcome Daughter Poppy
×