Economic Insights
Back to Normal?
Back to Normal? <br/>回復常態?

Back to Normal? <br/>回復常態?

Back to Normal? <br/>回復常態?

Back to Normal? <br/>回復常態?

Back to Normal? <br/>回復常態?

Back to Normal? <br/>回復常態?

Back to Normal? <br/>回復常態?

Back to Normal? <br/>回復常態?

Back to Normal? <br/>回復常態?

Back to Normal? <br/>回復常態?

Amid positive developments that include an unbroken streak of zero local Covid cases and a climbing vaccination rate, Hong Kong appears to have regained its footing and may well be on the road to recovery. In fact, Hong Kong is leading the world, according to the Normalcy Index devised by The Economist. 

This index tracks 50 of the world’s major economies that collectively account for 76% of the global population and 90% of global GDP. It comprises eight components: public transport, road traffic, number of flights, time spent out of home, sports attendance, cinema box-office revenues, shop footfall and office occupancy. 

The index was launched with a baseline of 100, which corresponds to pre-pandemic levels of activity, and is updated weekly. At the time of writing, Hong Kong tops the table with an overall score of 101.3. This means that life in the city, across the range of activities as measured in the index, has returned to or surpassed pre-pandemic levels, despite the ongoing safety requirements and travel restrictions.

Thanks to the city’s success in controlling the coronavirus, Hong Kong’s economy rebounded by 7.5% in the second quarter, following growth of 7.9% in the preceding quarter. At the same time, the city’s unemployment rate has dropped to its lowest level in more than a year, falling to 5.5% in the three months at the end of June.

Such relatively positive data from The Economist and the Government also correlates with the findings of a HKGCC survey that was conducted over the period of 19 to 23 July.

According to the Chamber survey, for 79% of respondents the worst appears to be over, with business turnover for the first half of 2021 either remaining constant (41%) or undergoing an increase (38%), compared to the same period last year (Figure 1).

However, despite a revival in economic and social activities, businesses are still struggling to regain the ground lost since Covid arrived, with 41% of respondents reporting that their turnover in the first half of this year remained below pre-pandemic levels. By comparison, only 23% of respondents said they had been able to grow their business over the same period.

Small companies are struggling more than their bigger counterparts in their ability to bounce back from the pandemic, with nearly half (47%) of SME respondents experiencing lacklustre business turnover in 2021 H1, relative to pre-pandemic levels. This was in contrast with the 34% of big corporations that reported similarly disappointing results (Figure 2).

While the Covid-19 pandemic has disrupted lives and businesses in many ways, it has also been a catalyst for technological adoption. A majority of respondents (69%) reported that they had upped their investments in digitalization (Figure 3) citing “operational efficiency and productivity,” “customer communication and engagement” and “customer and data acquisition” as the key motivating factors (Figure 4). 

Despite this encouraging development, more supportive measures are needed to help SMEs, based on feedback in the survey. Notably, 27% of SME respondents (compared to 16% of their larger counterparts) cited the lack of financial resources as the primary reason for not investing in digitalization (Figure 5).

Interestingly, and in spite of the uncertainty of the pandemic, businesses appeared to be less worried about their full year prospects for 2021. Based on survey feedback, 82% of respondents expect turnover to increase (44%) or remain unchanged (38%) compared to last year, as they evolve and adapt to doing business under the new normal (Figure 6).

However, full recovery remains elusive, as 34% of respondents anticipate a decrease in business turnover for the full year in 2021 compared to pre-pandemic levels (Figure 7), while 10% of respondents project a reduction of at least 50%.

“Reduced cross-border travel,” “scaled back business activities due to social-distancing” and “brain drain” were considered the three major challenges faced by businesses for the rest of the year. For big corporations, retaining staff is of particular importance as “brain drain” was rated as the second most important challenge (Figure 8). 

With social distancing and cross-border restrictions remaining in place, a meaningful and substantive revival of the local economy remains uncertain. The return to normalcy will be heavily dependent on Hong Kong’s ability to keep the virus in check, map out a post-pandemic strategy and maintain a stable operating environment.

Against this backdrop, the top three areas that respondents believed the upcoming Policy Address should give priority to were: “improving public governance and maintaining a safe business environment,” “controlling the pandemic and improving the healthcare system” and “providing financial support to relaunch the economy.” 

Larger companies hope that besides addressing acute issues, the Government will be able to implement a long-term strategy to improve land and housing supply, as well as harnessing the opportunities arising from the Greater Bay Area and Belt and Road initiatives (Figure 9). 

The return to normal life appears to be picking up steam and is expected to be accelerated by the stimulative effects of the electronic consumption vouchers, as the first tranche of the HK$5,000 per eligible person was distributed at the beginning of August. Shops and restaurants were packed with consumers in the days following the release of the vouchers as they rushed to capitalise on the windfall. 

Such a bullish development notwithstanding, the pandemic continues to have a devastating impact on some businesses and certain sectors of the job market. The crisis is not yet over, as Hong Kong continues to rely heavily on tight border controls to manage the pandemic. 

The city’s resilience will be tested when it reopens to the rest of the world. The Government will have to tread carefully when it reviews its support for affected businesses and individuals to avoid the risk of derailing a fragile recovery.

Wilson Chong, 


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