Hong Kong's growth forecasts at risk as Omicron spreads

[HONG KONG] Hong Kong's economic outlook for this year is off to a rocky start as an outbreak of Omicron-variant virus cases is set to hit the retail sector, cross-border travel and the city's status as a regional financial hub.

The economy was poised to return to levels of activity seen before the pandemic and protests of 2019, with a planned resumption of quarantine-free travel with China expected to revive leisure and business travel. Now, that optimism has been hit by new virus control measures announced this week, including cancelled flights, a ban on dining-in and large-scale events.

"The renewed restrictions introduced in Hong Kong are expected to once again dampen economic activity, particularly for the service sector and for firms reliant on face-to-face interactions," Jingyi Pan, an economics associate director at IHS Markit, said in an email.

In previous episodes of virus clusters, the territory's purchasing managers' index registered an immediate contraction of business activity and the market will be closely monitoring upcoming figures, she said.

While IHS Markit maintains a forecast for gross domestic product growth of 3.2 per cent, "the near-term outlook remain clouded by Covid-19."

Bloomberg Economics has reduced this year's GDP growth forecast to 2 per cent from 2.3 per cent. Fitch Ratings has also flagged downside risks to its expectation for 3 per cent growth this year. At Bank of America, analysts expects a 0.1 to 0.2 percentage point downside to its annual growth forecast of 2.4 per cent if the measures are extended, and a "marginal" impact if they are eased.

BLOOMBERG