HONG KONG: Hong Kong’s economy lost an estimated US$27 billion in potential growth due to the effects of the pandemic and the city’s strict Covid curbs, according to Natixis SA.
Natixis based its calculation on the assumption Hong Kong’s economy would have grown an average annual 2.8% over the past three years in the absence of Covid which amounts to about 7% of the city’s gross domestic product in 2018.
Hong Kong became one of the most isolated cities in the world as the government closed its borders for nearly three years. The financial hub will soon open its border to mainland China after lifting almost all virus curbs including flight bans and mandatory hotel quarantine over the course of 2022, meaning the economy is likely to bounce back this year.
Now that mainland China has abandoned Covid Zero, its reopening “will become a catalyst for Hong Kong’s growth with renewed cross-border activities”, according to Gary Ng, senior economist at Natixis.
Hong Kong’s economy may grow around 4% this year, although testing requirements imposed by countries on travellers from China may delay normalisation, he said.
Gross domestic product is projected to have shrunk by 3% in 2022, according to the median estimate in a Bloomberg survey, its third contraction in four years. Rising interest rates and waning global demand have also weighed on the economy.
Still, the legacy of Hong Kong’s Covid Zero measures will be hard to shake off.
“The normalised economic activities will help Hong Kong retain its financial hub status, but some cyclical pressure has already become structural scars,” Ng said, adding that investors and talent can find alternatives as businesses shift some operations to regional competitors.
Many expats and locals alike fled the city as Hong Kong clung to its Covid curbs, leading to widespread concern over its ability to compete with places like Singapore as a regional hub. In the two years through June 2022, the city’s population fell by about 216,000, or 2.8%, to 7.3 million. Concern over Beijing’s increasing control added to the exodus.
Chief Executive John Lee announced a plan in October to relax visa rules to stop the brain drain. Singapore, which saw its economy grow 3.7% last year, has also announced similar plans to entice highly skilled workers.