Fitch Downgrades Hong Kong as Pandemic Poses Economic Shock
The Agency downgraded Hong Kong as an issuer of long-term, foreign currency debt amid coronavirus outbreak.
(Bloomberg) -- Fitch Ratings downgraded Hong Kong as an issuer of long-term, foreign currency debt saying that the city is facing a “second major shock” from the coronavirus after prolonged social unrest last year.
Hong Kong’s rating was lowered to AA- from AA with a stable outlook, with real gross domestic product expected to fall by 5% this year after a 1.2% decline in 2019, Fitch said in a report Monday.
“Efforts to contain the spread of the virus locally appear to be gaining traction, but risks to our forecast remain to the downside and dependent on the evolution of the pandemic globally, given Hong Kong’s status as a small, open economy,” analysts at the ratings firm wrote.
Fitch downgraded Hong Kong’s rating to its lowest level since 2007, putting it below that of markets such as Macau and on par with the likes of the United Kingdom.
The ratings agency also said the downgrade reflected its view that Hong Kong’s gradual integration into China’s national governance system and increased economic, financial, and socio-political links to the mainland justifies a closer alignment of their respective sovereign ratings.
“These established trends are exemplified by the central authorities taking a more vocal role in Hong Kong affairs than at any time since the 1997 handover,” it said.
The Hong Kong government said it was “disappointed” with Fitch’s assessment. “The view that Hong Kong’s rising economic and financial ties with the Mainland is credit negative is also ungrounded,” a government spokesman said in a statement Monday.
The pandemic is the latest blow to Hong Kong’s economy, threatening to further extend a recession that began in 2019 after months of anti-China political unrest.
The city’s shops and businesses buckled under the full force of the coronavirus outbreak in February as retail sales plummeted by the most on record amid growing travel restrictions and social-distancing measures.
Consumption in the city has been severely curtailed as mainland China tourists stopped visiting last year and residents have been staying home to avoid infection during the coronavirus outbreak. The jobless rate rose for a sixth straight month in March to the highest level since October 2010.
Efforts to contain the virus’s spread have led to a contraction in economic activity that has prompted policymakers to announce the most expansionary budget in the territory’s history, said Fitch.
Authorities are introducing a host of supportive measures to ease financial pressures including a $18 billion stimulus package aimed at securing job retention.
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