Hong Kong's retail sales plunge again in March on virus curbs

HONG KONG'S retail sales plummeted 13.8 per cent in March, the first back-to-back contraction in more than a year as stringent virus restrictions weighed heavily on the economy and crushed consumer spending.

The fall in sales value from the prior year was worse than the median estimate of a 12.6 per cent decline expected by economists in a Bloomberg survey, though it was less than the 14.6 per cent drop in February. Sales volume fell 16.8 per cent from a year ago, the Census and Statistics Department said on Thursday (May 5), roughly in line with economist expectations.

The February-March period was the first time since the end of 2020-into-2021 that retail sales declined for 2 straight months, as the city imposed strict social curbs -- including a ban on dining-in after 6 pm and closing gyms and beauty salons -- to contain a deadly Covid outbreak.

The full impact of those restrictions is also likely not captured in the data, as the retail sales data covers consumer spending on goods but not services such as catering, medical care and entertainment, which account for over 50 per cent of total consumer spending.

Things are now looking up for Hong Kong, which is accelerating plans to ease curbs by reopening beaches and swimming pools and extending dining in-hours in the coming days and weeks, among other measures.

A gauge of private sector activity also improved last month, adding to early signs of a rebound. And the government has started handing out consumption vouchers to help growth: Last year's handouts helped boost monthly retail sales by double digits.

But the damage to the economy in the first quarter was still far deeper than many economists anticipated, suggesting a potentially lengthy road to recovery.

The city's gross domestic product contracted 4 per cent in the first quarter, well below the median estimate of a 1.3 per cent contraction in a Bloomberg survey.

This week, DBS Group Holdings cut its 2022 growth forecast to 1.7 per cent, citing global supply chain disruptions, the "dwindling pace" of the labour force and rising interest rates that will hamper investment recovery. United Overseas Bank shaved its prediction to around 1.3 per cent.

Adding pressure, the Hong Kong Monetary Authority raised its benchmark interest rate on Thursday by 50 basis points to 1.25 per cent, in line with the US Federal Reserve. Monetary policy in the city moves in lockstep with the Fed since the Hong Kong dollar is pegged to the US currency.

The economy did get some relief, though, as local banks kept their best lending rates unchanged, which will likely spur lending and borrowing even as the benchmark rate tightens. BLOOMBERG