Hong Kong's Economy

Hong Kong is China's window to the world.

So as long as China's economy is doing reasonably well, Hong Kong should be able to cope, right?

Wrong.

Latest projections by Fitch now foresee Hong Kong's GDP to drop 9.1 % yoy in 2009. That's far worse than even the worst case projections for Germany and Japan, and among the worst outlooks worldwide (though the HK government continues to remain a bit more upbeat and "only" projects a 6.5 % drop; in Q1, the yoy drop was 7.8 %).

Part of the reason is the declining number of visitors: May visitor arrivals were down 13.5 % yoy. Business travelers are cutting down on trips to save costs and - potentially even worse - mainland Chinese are staying home due to the swine flu scare.

It doesn't help that HK authorities announced today that all of HK's kindergartens and primary schools will remain closed for at least two weeks to avoid the spread of the illness. Rationally, visitors needn't worry, as there are few cases in HK, and surely everybody has realized by now that swine flu in its current form is not exactly a horrible killer disease. But Chinese travelers are rarely rational when it comes to illnesses.

Meanwhile, HK's exports are also down more or less in line with the rest of the region, dropping around 20 % yoy during the first four months of the year.