Twinnie Siu and Donny Kwok

HONG KONG (Reuters – Hong Kong’s economy shrank in the first quarter because of the strictest restrictions imposed by the city to control an infestation of COVID-19. The disease, which has ruined businesses and caused exodus of workers, obstructing the growth outlook.

According to government figures, the economic performance of the financial hub’s first quarter was 4% lower than a year ago, breaking its four years of growth. This compares to 4.7% revised growth in the fourth quarter, and the forecasts of a 1.2% drop by Standard Chartered (OTC) for the first three months.

A government spokesperson stated that “the global economy will face significant challenges in near term”, adding that the improvement of local epidemiology and support from government measures would help to boost domestic demand over the course of the year.

Hong Kong’s borders are now closed as of early 2020. Few flights land and hotels quarantined for arrivals have dampened demand. Hong Kong is following mainland China’s lead in adopting a “dynamic zero” coronavirus strategy, which aims to reduce all cases.

Samuel Tse from DBS Bank, said that the timing of reopening border depends on COVID conditions in China and Hong Kong. It will gradually open around the middle of 4Q, according to our most optimistic assumptions.

Quarterly, the economy contracted by 2.9% seasonally in January-March.

After expanding 6.4% by 2021, Hong Kong’s economy will grow 2.5% to 3.5% in 2019, with an underlying inflation of 2%.

Hong Kong opened its financial hub to non-residents in May. This was a significant step towards easing the stringent restrictions that have made Hong Kong one of the most remote places in the world.