FIRST LOCAL HOUSEHOLD SPENDING TO SHRINK 5.2% IN 2020
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ong Kong’s household spending is tipped to contract 5.2% YoY in 2020 as consumers have been diligently avoiding crowds and retail establishments in fear of contracting the virus, according to a Fitch Solutions report. As government measures are made to stem the flow of the COVID-19 infection, purchasing patterns have been observed to undergo shifts, with consumers placing a greater focus on essential spending categories. The city was the first region where panic buying and hoarding was recorded in relation to the pandemic, when consumers in 2020 feared that they would lose access to toilet paper and other supplies if their land border with China was sealed. With this, three sectors, all relating to food and supermarkets, saw a double-digit increase in sales in February 2020. As the population became health and hygiene conscious following the 2003 SARS outbreak, the current COVID-19 pandemic could drive them to become even more aware of their health, and boost the sales of health related goods at pharmacies or traditional Chinese medicine shops. On the other hand, the population has avoided restaurants and other recreational spaces, and some food service chains have either reduced operating hours or closed their dine-in services. Further, it was decreed on 2 April that any premises that are exclusively or “mainly” used for the sale or supply of alcohol are to be shuttered, which affected about 1,200 bars and pubs across the city. For the furnishing sector, major companies in the city have yet to reveal revenue declines, but furniture retailer Pricerite has cut executive pay by 40%. This could gove a hint at the pressures the company is currently facing.
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HONG KONG BUSINESS | Q3 2020
Victoria’s Secret flagship store is the latest retail casualty in Hong Kong.
Hong Kong to be the most hard-hit economy
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ong Kong is expected to struggle the most economically in the AsiaPacific region due to the COVID-19 pandemic, according to a Moody’s report. This was attributed to the strict social distancing policies and closures of non-essential businesses, which has also affected the Singapore and Malaysian economies. “The very open nature of the Hong Kong and Singapore economies makes them more vulnerable than others in the region. Korea and Thailand face considerable risk as well in the near term,” said Steven Cochrane, chief Asia Pacific economist at Moody’s. Even as these markets’ economies are expected to recover in 2021, it still faces two uncertainties as recovery accelerates. The first is whether supply chains are able to fully return to the region as a critical driver of growth, and whether global investment may work to bring supply chains closer to final markets. The second is whether a rising debt load throughout the region will weigh on the pace of economic growth as households and industries
Hong Kong and Singapore economies are extremely vulnerable to downswings in global trade flows and tend to thrive when the global economy is on an upswing.
work to manage their increased debt. “The depth and length of economic distress differ across the region, but no APAC country is avoiding recession. China and much of APAC experienced declines in GDP in the first quarter of this year. China is beginning to rebound in the current quarter, but the rest of the region will endure a decline in the second quarter as well,” Cochrane said. Hong Kong, along with Singapore, Japan, Taiwan and Thailand are projected to suffer modest declines in 2020 compared with 2019. Cochrane added that another reason why Singapore and Hong Kong will be the worst-hit economies is their export exposure. These two markets have the largest export exposure at around 180% of GDP. “As a result, these economies are extremely vulnerable to downswings in global trade flows and tend to thrive when the global economy is on an upswing. Both economies underperformed through 2019 as US-China trade dampened global demand. Vietnam’s economy is next in line, with exports forming around 100% of GDP,” he stated. In addition, Singapore and Japan are projected to face the slowest paths to recovery as both economies were weak prior to the onset of COVID-19. Japan has been in recession since Q4 2019 following the October hike of its value-added tax and, in that same month, the unfortunate arrival of Typhoon Hagibis on Honshu near Tokyo, whilst Singapore’s growth rate already was near zero in Q4 2019 and declined in the Q1 2020. “Singapore is amongst the most export-dependent countries in the region. It was first weakened by the impact of the US-China trade war and then went into a tailspin with the loss of trade with China in January and February, and the rest of the world in March and April. Japan and Singapore will require the broad global economy to run at full speed before they reach new peaks,” Cochrane explained. However, both countries’ strong fiscal and monetary policy responses will help stabilise their paths this year, but Conchrane warned that neither will truly recover without the global economy—including China, Europe and North America—leading the way.
