Hong Kong’s Growth Slows as Omicron Spread Weighs on Economy

(Bloomberg) -- Hong Kong’s economic growth slowed in the fourth quarter, with the city facing mounting risks in coming months as it struggles to bring an omicron wave under control.

Gross domestic product expanded 4.8% last quarter from a year earlier, according to advanced estimates released by the government on Friday, weaker than the 5% median estimate in a Bloomberg survey of 12 economists. Full-year growth was 6.4%, compared with a median estimate of 6.6%, the first annual expansion after two straight years of contraction. 

Heading into this year, a raft of virus measures have worsened the outlook for an economy that had been poised to return to pre-pandemic levels of activity. Recent moves include a ban on dining in restaurants -- now extended until Feb. 17 -- travel restrictions and the culling of thousands of pets. A delayed reopening with China was a key driver behind economist downgrades for the city’s growth outlook, given its reliance on tourists from the mainland. 

“The first quarter is gone,” said Samuel Tse, an economist at DBS Group Holdings Ltd. in Hong Kong. The retail sector has been affected, the supply chain is stretched and the labour market is not looking good, he said. “2022 is not a very good year,” he added.

Last quarter’s growth was underpinned by private consumption expenditure, improved labor market conditions and the launch of spending vouchers, the government said in a statement. Still, frozen inbound tourism remained a “drag” on the economy, it said.

The first disbursement of the vouchers, in August, helped to boost retail sales growth to 11.9% from 2.8% in the previous month. The second distribution, in October, also fueled a rise to double-digit growth. 

Entrepreneurs and politicians have called for a fresh round of stimulus measures to cushion the economy from the latest outbreak, including consumption vouchers. Finance Secretary Paul Chan has said the upcoming budget on Feb. 23 will provide a balance between offering support for those affected by the pandemic and boosting the economy. 

What Bloomberg Economics Says...

Climbing numbers of Covid-19 infections -- including omicron and delta clusters -- are likely to derail Hong Kong’s recovery in the first quarter. The widening outbreak is increasing downside risk to our GDP outlook -- which we recently slashed. A contraction is likely if social-distancing restrictions are extended into late 1Q. 

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Eric Zhu, China economist

The government also highlighted risks from a slowing global economic recovery, high inflation in some countries and a faster pace of monetary policy by major central banks.

“The Hong Kong economy is expected to expand further in 2022, but the growth pace is subject to various uncertainties, especially those relating to the local epidemic development,” the government said in its statement Friday. “The latest wave of epidemic and the tightened anti-epidemic measures have posed renewed pressures on economic activities and weighed on sentiment.”

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