Hong Kong’s fourth-quarter economic performance may provide little consolation as the city struggles to rein in the omicron wave, pressuring the government to dole out more stimulus to hard-hit sectors like retail.
Government data on Friday will likely show gross domestic product rose 5% in the latest quarter from a year earlier, according to the median estimate from a Bloomberg survey of 12 economists. Full-year growth is estimated at 6.6%, the first annual expansion after two consecutive years of contraction.
Heading into this year, a series of virus measures have worsened the outlook for an economy that was on the verge of returning to pre-pandemic levels of activity. Recent measures include a ban on eating in restaurants – now extended until February 17 – travel restrictions and the culling of thousands of pets. A delayed reopening with China has been a major driver of economists’ downgrades to the city’s growth prospects, given its reliance on mainland tourists.
“Much of the improvement is expected to reverse this quarter amid tighter social distancing restrictions,” said Sheana Yue, an economist at Capital Economics. In the fourth quarter, a stable virus situation and consumer vouchers likely contributed to a recovery in household spending, which accounts for about two-thirds of the city’s demand, she said.
Finance Secretary Paul Chan has warned that the economy will be hit by omicron, but will continue to grow this year. He said the upcoming Feb. 23 budget will balance between providing support for those affected by the pandemic and stimulating the economy. Entrepreneurs and politicians have called for a new series of consumption vouchers.
Samuel Tse, economist at DBS Group Holdings Ltd. in Hong Kong, said stronger stimulus was expected in the budget as a fifth round of relief measures, announced this month, accounted for just 1.1% of total stimulus since 2020.
Foreign business leaders, including the American Chamber of Commerce, have expressed growing frustration with the travel rules, warning of damage to Hong Kong’s status as an international financial hub. City leader Carrie Lam on Thursday announced an easing of quarantine rules for inbound travelers, while extending the flight ban for several countries.
“The outlook for 2022 is clouded by the omicron outbreak,” Tse said. “In the best-case scenario, the retail sector can grow by a maximum of 10% this year.” If the reopening of the border with China is delayed until the end of the third quarter, there will be additional downward pressure, he said.
Investors are also bracing for a possible interest rate hike in Hong Kong later this quarter. The US Federal Reserve signaled rate hikes in March and monetary policy in Hong Kong – which pegs its currency to the dollar – normally moves in step with the US.
The central bank said Thursday it would continue to monitor market developments and maintain monetary and financial stability.
Given all the uncertainties, it may be too early to have a good idea of the city’s economic trajectory for the year. William Deng, economist at UBS Group AG, maintains his forecast for 4.1% growth for the year, but with downside risks. He argues that the city is better able to handle future virus outbreaks and that local consumer spending should recover.
“We are still at the beginning of the year, and the extent of the impact of the current epidemic is not yet easy to quantify,” Deng said in an interview. “The room for maneuver of the various parameters is still quite large.”
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