Fitch Slashes Hong Kong GDP Forecast On Latest Covid Crackdown

Fitch Ratings Ltd. slashed its economic growth forecast for Hong Kong after the city imposed tough social distancing rules to curb the spread of Covid-19.

The ratings company halved its estimate for gross domestic product growth for this year to 1.5% from 3.0%, making the Hong Kong economy one of the worst performers globally.

“Our revised growth projections imply that real GDP will not surpass its 2018 level – prior to both the onset of anti-government protests and the pandemic – until 2023, which would rank among the weakest recent growth performances across all Fitch-rated sovereigns and territories,” Andrew Fennell, head of Greater China sovereign ratings, said in a release.

Fitch’s outlook is more bearish than downgrades by several banks, including Goldman Sachs Group Inc. and Morgan Stanley, in recent weeks and comes after data last month showed the economy already began slowing in the final quarter, when Hong Kong was hit by an outbreak of the highly infectious omicron virus variant.

Tighter virus restrictions are set to come into effect on Thursday, including an unprecedented rule that limits gatherings on private premises to two families. The city is seeing a surge in infections after last week’s Lunar New Year holiday, which typically sees family and friends gather indoors.

In its assessment, Fitch warned that Hong Kong would likely stick to its aggressive Covid-zero strategy until 2023, in line with the policy on mainland China.

That likely means plans for a reopening of the border with the mainland are now scuppered, with knock-on consequences for tourism and consumer spending.

Slowing global demand will also weigh on growth, Fitch said. The economy grew 6.4% in 2021 after shrinking 6.1% in the previous year, helped by Hong Kong’s role as a logistics hub and global trade intermediary, it said.

“With foreign demand expected to gradually normalize this year, and with Hong Kong’s aviation industry and cargo shipments crippled by flight bans and strict quarantine requirements for personnel, this trend appears unlikely to persist throughout 2022,” Fennell said.

Author: Enda Curran, Bloomberg

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