HONG KONG – Hong Kong is set to end the year in the midst of a full-blown recession, the city’s finance chief warned on Thursday, as spiralling interest rates join strict Covid-19 controls in hammering the economy.
“There is a very high chance for Hong Kong to record a negative GDP (gross domestic product) growth for this year,” Financial Secretary Paul Chan told reporters, adding that interest rates were being raised “at a pace that was never seen in the past three decades”.
The Chinese city’s monetary policy moves with the US Federal Reserve because its currency, one of the cornerstones of its business hub reputation, is pegged to the United States dollar.
The Fed’s hawkish rate hikes, aimed at curbing soaring inflation, come at an especially difficult time for Hong Kong, dampening sentiment when the economy is already struggling.
The city is currently in a technical recession – recording two consecutive quarters of negative growth this year.
The government has adhered to a version of China’s zero-Covid-19 policy for more than 2½ years, enforcing strict coronavirus controls and mandatory quarantine for international arrivals.
Quarantine, once as long as three weeks, has been reduced to three days. The government has indicated that it may soon join the rest of the world in scrapping travel curbs.
Mr Chan signalled his support for making travel and business easier.
“The aspects related to the pandemic need to continue to improve in order for us to see larger investments because people are more cautious in a high interest rates environment,” he said.
Business leaders have long been warning that the pandemic controls, combined with Beijing’s ongoing crackdown on dissent, have made it harder to attract talent and cut off Hong Kong internationally, especially as rivals reopen.
The city has seen a net outflow of more than 200,000 people in the last two years, a record population drop.
“Hong Kong should be ahead of other Asian cities. But now, there is a feeling that we are falling behind and being left isolated,” Dr Eden Woon, the new head of the city’s American Chamber of Commerce, told the South China Morning Post in an article published on Thursday.
“There are people leaving and the problems of retaining talent. All these things add up together and need to be addressed,” he added.