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Economy

Hong Kong reaches full year of economic recession

Contraction looks set to exceed record set in Asian financial crisis

The restaurant sector has been one of Hong Kong's worst hit by the coronavirus pandemic. From Wednesday, restaurants are barred from serving dine-in customers for one week as the city battles its worst COVID-19 outbreak. Tsui Wah and other chains have already closed outlets around the city.    © AP

HONG KONG -- Hong Kong appears on track to match or top its longest recession on record after output dropped for a fourth straight quarter in the April-June period.

The economy shrank 9% for the quarter compared with a year before, according to an advance government reading, missing the 8% consensus estimate of analysts surveyed by FactSet and extending a downturn that started last July when anti-government protests heated up in the city.

Gross domestic product dropped 9.1% in the first quarter of the year, the steepest drop ever seen in the city.

Few expect things to turn around in current quarter, with the U.S. revoking trade privileges in response to China's imposition of a controversial national security law in Hong Kong and with the city imposing its tightest control measures yet in response to its highest surge in COVID-19 cases.

Iris Pang, chief economist for greater China at ING Bank, projected the city's contraction will deepen to 10% in the quarter ending Sept. 30 and drop 5% again in the fourth quarter.

Commented Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, "The most worrying aspect about the Hong Kong economy lies in the plummeting retail sales even when mobility restrictions were much milder in June."

Tommy Wu, lead Asia economist at research company Oxford Economics, is slightly more upbeat than Pang and Garcia-Herrero, forecasting a full-year contraction of 6% against their 8.3% and 7% predictions, respectively, but he is still pessimistic about the city's prospects.

"If the current wave of the virus is prolonged, business closures and unemployment will rise sharply," he wrote in a research note. "In addition, political uncertainty, stemming from the national security law and the international responses to it, cloud the city's prospects, especially over the medium term."

Hong Kong's longest recession to date, which began in 1998 amid the Asian financial crisis, lasted five quarters. Last month, the city posted its highest unemployment rate since 2005, with the jobless rate surging to 6.2% but Pang said she expected the rate to reach 8% in the current quarter.

A 137.5 billion Hong Kong dollar ($17.74 billion) government stimulus package in April included a one-off cash handout of HK$10,000 to all local citizens but many sectors remain under pressure. On Wednesday, a one-week ban on dining inside restaurants took effect.

"While a number of fiscal packages have been deployed, they clearly fall short of the strength needed to avoid such big recession," Garcia-Herrero said.

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