Hong Kong Slips Into Recession as COVID Measures Weigh on Economic Activity in Q2

By Scott Kanowsky

Investing.com -- Hong Kong has slumped to its second recession since 2019 as strict COVID restrictions and tightening financial conditions weighed on growth.

Second-quarter gross domestic product in the Chinese territory contracted by 1.4% compared to the same period last year, following a fall from a final reading of 4.0% in the first three months, according to preliminary data from Hong Kong's Census and Statistics Department. Two consecutive quarters of declines are widely-considered to signal a so-called "technical recession".

It is the first downturn in three years, when widespread protests against Chinese influence in the city and a subsequent crackdown by Beijing led to a decline in tourists visiting the city.

In 2022, tough measures to prevent the spread of COVID-19 - spurred on by Beijing's aim to completely eradicate the disease - have hit Hong Kong's crucial financial services industry particularly hard. Businesses have previously said that these rules, including social distancing and hotel quarantines, are causing them to reconsider basing operations in the city.

The restrictions have also slowed cross-border transportation with mainland China, depriving Hong Kong of complete access to a massive trading source. Total exports of goods tumbled by 8.6% in real terms year-on-year, sliding further down from a 4.5% decline in the first quarter.

A government spokesperson said the city may see some relief in external trade this year if movement between the mainland and Hong Kong improves.

However, the spokesperson warned that a recent series of global central bank interest rate rises aimed at cooling red-hot inflation will dampen Hong Kong's growth "significantly" throughout the rest of the year.

Any potential revival, the spokesperson added, will "depend on how the local epidemic evolves and how the tighter financial conditions affect consumer's spending power and sentiment".