The Hong Kong economy, which is already in recession due to a double whammy of the Sino-U.S. trade war and social unrest, is now being buffeted by coronavirus-related disruptions. Some have compared the economic impact of the coronavirus outbreak to that of SARS in 2003, when Hong Kong was badly hit.
In 2003, the number of SARS patients was over 5,300 in Mainland China and 1,700 in Hong Kong. As of 12 February, 2020, confirmed cases of coronavirus in the Mainland and Hong Kong were 44,730 and 50 respectively.
It is too early at this moment to estimate the related economic cost, but the following charts suggest why the retail and tourism sectors in Hong Kong could be more exposed to the coronavirus outbreak than SARS, potentially putting more pressure on the real economy and labour market.
1. More dependent on tourists from Mainland China
The tourism sector in the city is being hit particularly hard as services at 10 boundary control points between Hong Kong and the Mainland are suspended, and all entrants from the Mainland are being quarantined for 14 days, aiming to reduce the movement of people between the two places.
2. Higher proportion of retail spending on the more volatile luxury goods
The value of sales of jewellery, watches and clocks, and valuable gifts – a yardstick for spending by tourists – increased significantly from the early 2000s to 2019. During economic downturns, sales of such luxury goods would normally be negatively affected more than staple goods.
3. More tourism-related jobs
Tourism accounted for 32% of Hong Kong's total service output in recent years, compared to 21% during the SARS period. While the sector contributes 5% of Hong Kong’s GDP, the total number of people employed in Hong Kong related to tourism -- including retail, accommodation, food and beverage, and travel agencies -- almost doubled from 142,200 in 2002 to 256,900 in 2018. Consequently, more individuals and households are potentially affected by the current epidemic.
In order to weather the extremely difficult business conditions, some companies in such industries have already asked their employees to take unpaid leave or reduce working hours. This is not only because of fewer tourists coming to Hong Kong, but also as a result of local people staying at home and not coming out to spend.
According to preliminary government figures, real GDP in Hong Kong contracted by 1.2% last year. There is little sign of an economic recovery in the near term. In 2003, a speedy economic recovery, partly aided by the introduction of the Individual Visit Scheme, started as soon as the outbreak of SARS began to recede. However, even if the outbreak of coronavirus subsides in the coming months, consumer spending and business investment may remain under pressure amid uncertainty related to the trade war and social unrest.
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