The economic growth recovery has been unbalanced since the health shock in early 2020 and has rapidly lost steam. It was then interrupted in the first quarter of 2022, due to a very sharp rise in the number of Covid-19 infections and deaths linked to the Omicron variant. The epidemic wave is starting to recede, but Hong Kong will now have to face the effects of a slowing global trade, rising commodity prices and the tightening of US monetary policy [...]
The Covid-19 pandemic strikes an economy that has already been weakened by several quarters of decline in merchandise exports, tourism, private consumption and investment. Since February, the government has launched a major fiscal stimulus plan representing about 10% of GDP. The plan includes direct support measures in favour of corporates and households [...]
Hong Kong is a free market economy with a liberal regulatory framework, an efficient payment system and sound macroeconomic fundamentals. Hong Kong’s high degree of trade and financial openness makes it very reliant on world demand and global capital flows while its currency board system (the HKD is pegged to the USD) means its monetary policy is tied to that of the US Federal Reserve. At the same time, the Hong Kong economy is highly integrated with Mainland China, through trade, tourism and financial links.
Annual average real GDP growth slowed to 2.8% in 2014-2018 from 3.5% in 2007-2011. The Hong Kong economy fell in recession in 2019 due to slower world trade growth, slower Chinese growth, US-China tensions, social protests and weaker domestic confidence. The Covid-19 shock only added to the woes. Hong Kong’s medium-term economic outlook has been weakened by recent institutional and legal developments. At the same time it remains supported by its strong macroeconomic fundamentals, high-quality services sector serving as a gateway to Chinese markets and role as a key financial hub for Chinese firms.
