Hong Kong’s economic performance in the fourth quarter may provide little consolation as the city struggles to bring the omicron wave under control, putting pressure on the government to dole out more stimulus for hard-hit sectors like retail.
Government data Friday likely will show gross domestic product expanded 5% last quarter from a year earlier, according to the median estimate in a Bloomberg survey of 12 economists. Full-year growth is seen at 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.
"Much of the improvement is likely to reverse this quarter amid tightened social distancing restrictions,” said Sheana Yue, an economist at Capital Economics. In the fourth quarter, a stable virus situation and consumption vouchers probably helped drive a pickup in household spending, which accounts for around two-thirds of the city’s demand, she said.
Finance Secretary Paul Chan has warned the economy will take a hit from omicron, but will still grow this year. He said the upcoming budget on Feb. 23 will balance between offering support for those affected by the pandemic and boosting the economy. Entrepreneurs and politicians have called for a fresh round of consumption vouchers.
Samuel Tse, an economist at DBS Group Holdings Ltd. in Hong Kong, said stronger stimulus is expected in the budget as a fifth round of relief measures, announced this month, was only 1.1% of total stimulus since 2020.
Foreign business leaders, including the American Chamber of Commerce, have expressed increasing frustration with travel rules, warning of the damage to Hong Kong’s status as an international financial hub. The city’s leader, Carrie Lam, on Thursday announced an easing in quarantine rules for inbound travelers, while extending a flight ban for several countries.
"The 2022 outlook is clouded by the omicron outbreak,” Tse said. "In our best case, the retail sector can at most grow by 10% this year.” If the reopening of the border with China is postponed to the end of the third quarter, there will be further downward pressure, he said.
Investors also are bracing for a potential interest-rate hike in Hong Kong later this quarter. The U.S. Federal Reserve has signaled rate increases in March, and monetary policy in Hong Kong — which pegs its currency to the dollar — normally moves in lockstep with the U.S.
The central bank said Thursday it will continue to monitor market developments and maintain monetary and financial stability.
Given all the uncertainties, it may be too early to have a good gauge of the city’s economic path for the year. William Deng, an economist at UBS Group AG, is maintaining his growth forecast of 4.1% for the year, though with downside risks. He argues that the city is more able to manage future virus outbreaks, and local consumer spending is expected to recover.
"We are still in the early part of the year, and the scale of the impact of the current outbreak is not easy to be quantified just yet,” Deng said in an interview. "The room for different parameters to move is still quite substantial.”
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