To gauge the impact of Covid-19 on members’ business operations and to understand their views of how useful the Government’s relief measures are, the Chamber conducted a second survey on the coronavirus during 4 - 8 May.
Worryingly, one in three companies in Hong Kong could go out of business in six months if the coronavirus crisis persists and there are no further rescue measures, the survey results showed.
As nearly every sector of the economy has been hit, a combined 86% of the survey respondents said their business activities in Hong Kong had either been significantly (48%) or moderately disrupted (38%) by the epidemic (Figure 1).
A large majority of respondents (86%) said their business turnover had dropped due to coronavirus, versus 11% who said there had been no change and 3% whose turnover had risen (Figure 2). This result is very close to that of the Chamber’s survey conducted in mid-February, indicating that most businesses remained unable to turn the corner.
With more social-distancing measures being introduced by the Government since late March and the virus spreading around the world, businesses in general saw their turnover drop by an even larger extent compared to the early stages of the local outbreak. Among those who experienced a drop in turnover, half said it had plunged at least 50%, while 14% said at least 90%, according to the latest survey. These proportions were higher than the respective 39% and 8% in the February survey.
Businesses have adopted various cost-saving plans in order to mitigate the impacts. Renegotiation with landlords for more favourable lease terms, reduction in investment spending, and reduction in working hours of staff were respondents’ most common responses (Figure 3).
There has been growing concern about the potential for a resurgence or second wave of infections, and the World Health Organization Chief Scientist has said that it could take four or five years before Covid-19 is under control.
This is the last thing that businesses may want to hear. It is virtually impossible for businesses to prepare cash flow projections and strategies to deal with the current situation. In this connection, uncertainty arising from how long Covid-19 would last was the most important current concern for businesses, followed by cash flow and being loss-making; while supply chain disruption was the least important (Figure 4).
When asked about how long their business could survive the Covid-19 crisis, if it continues, one in three respondents said their business could only survive for up to six months (Figure 5): 1% said less than a month, 2% one to two months, 12% three to four months, and 16% five to six months. This gloomy outlook will continue to pile pressure on business spending.
The Government has introduced several rounds of relief measures to support the economy, worth a total of 10% of GDP. The Employment Support Scheme, which will help employers pay a portion of wage bills starting as soon as June, was considered to be the most useful relief measure, receiving a score of 3.9 out of 5 (Figure 6).
The economic consequences of Covid-19 are becoming clearer as more data have been published. For the first quarter of 2020, the Hong Kong economy contracted by 8.9% year-on-year or 5.3% quarter-on-quarter, the sharpest pace on record. The seasonally adjusted unemployment rate also increased to 5.2% in the period between February and April, a 10-year high.
Private consumption, which accounts for roughly 68% of GDP, dropped by 10.1% year-on-year in the first quarter. Gross domestic fixed capital formation, which measures investment spending and is usually more sensitive to economic conditions, contracted to an even larger extent of 14.3% as business sentiment soured. Only government spending registered a positive growth of 8.3%.
On the external front, total exports of goods dropped by 9.9%, as the pandemic resulted in a shock to both supply and demand, forcing production shutdowns and dampening consumer demand at the same time across the globe. Meanwhile, total exports of services fell by 37.8% as visitor arrivals plummeted.
Looking ahead, the survey respondents offered a not-so-optimistic appraisal of the future. A majority of them believed that a quick and strong economic recovery is unlikely. Only 5% of the respondents expected that the recovery in the city would look like the much-desired V-shape, and almost half of the respondents expected a U-shaped recovery, which represents a slower and more gradual rebound (Figure 7).
Regardless of the shape of the recovery of the economy as a whole, one should bear in mind that the pace and shape of recovery will not be the same across all sectors. While some sectors may bounce back more quickly, some others – especially those requiring more face-to-face interaction and which are bearing the brunt of the disruption right now, such as travel, hospitality and exhibitions – are not likely to be so lucky. Some doubt whether they can return to normal, even after Covid-19 wanes.
Bleak business conditions, together with the city’s sharp economic slowdown in the first quarter of the year, underlined why the Government has taken unprecedented action to save jobs and support enterprises. When the dust begins to settle, policymakers will likely shift their focus gradually from fighting Covid-19 to setting the stage for economic recovery, but let’s not forget that no single policy can fit all as certain sectors have been disproportionally affected by the epidemic. Therefore, resource allocation will need to be carefully planned.
Wilson Chong, [email protected]