Is Hong Kong Poised for a Strong Economic Recovery?
There’s no doubt that the coronavirus took a heavy socio-economic toll across the globe in 2020, with the Asia-Pacific the first and initially hardest-hit region.
No individual economy bore the brunt of this more than Hong Kong, which contracted by a whopping 6.1% in 2020 as coronavirus lockdown measures and continued political unrest combined to impact businesses, households, and the overall GDP.
In fact, the government reported a GDP decline of 3% in the final quarter of 2020 year-on-year, as January began under a considerable cloud. While things may be finally looking up, we ask whether the more recent economic surge is disguising an uneven and potential unsustainable recovery.
Hong Kong Growth and the Nature of the Region’s Recovery
It’s clear that the coronavirus pandemic came at the worst possible time for the Hong Kong economy, which has now ended two successive years in the grips of a deep recession.
In 2019, the city was rocked by seven straight months of violent democracy, based on China’s encroaching and increasingly stringent rule. These spilled over into 2020, prior to the Covid-19 outbreak reaching its shores.
Of course, HK managed to keep total infections comparatively low, with a little more than 10,000 cases recorded alongside 180 fatalities.
However, this came at a heavy socio-economic cost, with infections curtailed by tough lockdown measures and the temporary cessation of activity in industries such as travel, leisure, and hospitality.
The new year has brought considerably more hope and optimism, however, as the region bounced back to post its fastest growth in more than a decade through quarter one. More specifically, GDP surged by an impressive 7.8% year-on-year between January and March, with this ending a streak of six consecutive quarterly declines.
This is where the situation appears to be a little complicated, however, as the annual Q1 figures should be considered in the context of the lockdown that was firmly in place at the same time in 2020.
Not only this, but concerns remain that the recovery is largely uneven, based primarily on considerable export growth that has been driven by the declining value of the Hong Kong dollar (HKD) and the reopening of economies from across the globe.
Additionally, it’s thought that the medium-term recovery will be held back by weak consumer spending and a noticeably slow vaccine rollout, which continues to weigh heavily on investor sentiment too.
Is the Dollar Starting to Stabilize?
The good news is that the HKD is starting to stabilize, both according to the region’s central bank and the improved performance of the US dollar (USD).
Remember, Hong Kong’s currency is pegged directly to the greenback, and as the latter continues to rise against the British pound and the Euro, so too the KKD begins to see its own status improve.
The continuation of this trend will see import prices fall and capital inflows into Hong Kong potentially increase, boosting business sentiment and consumer confidence in the process.
Over time, this could help to create a more even and sustainable recovery in HK, especially if the vaccine rollout improves throughout the region.
This article has been published in accordance with Socialnomics’ disclosure policy.