Hong Kongs isolation estimated to cost economy $35 billion

HONG KONG Hong Kongs economy lost an estimated US$27 billion (S$35 billion) in potential growth due to the effects of the pandemic and the citys strict Covid-19 curbs, according to Natixis.

Natixis based its calculation on the assumption that Hong Kongs economy would have grown an average annual 2.8 per cent over the past three years in the absence of Covid-19.

Hong Kong became one of the most isolated cities in the world as the government closed the 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 its zero-Covid strategy, the reopening will become a catalyst for Hong Kongs growth with renewed cross-border activities, according to Dr Gary Ng, a senior economist at Natixis.

Hong Kongs economy may grow around 4 per cent this year, although testing requirements imposed by countries on travellers from China may delay normalisation, he said.

GDP is projected to have shrunk 3 per cent in 2022, according to the median estimate in a Bloomberg survey, the third contraction in four years. Rising interest rates and waning global demand have also weighed on the economy.

Still, the legacy of Hong Kongs zero-Covid 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, Dr 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-19 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 citys population fell by about 216,000, or 2.8 per cent, to 7.3 million. Concern over Beijings 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 per cent last year, has also announced similar plans to entice highly skilled workers. BLOOMBERG More On This Topic HK scraps most Covid-19 rules, though masks still mandated China to end quarantine for Hong Kong border as soon as Jan 3: Report