Grim outlook for Hong Kong retailers as third wave of COVID-19 strikes

August 7, 2020

HONG KONG -- Hong Kong is facing a deeper economic quagmire owing to a third wave of COVID-19 infections, with the global financial group, Natixis, lowering its forecast for Hong Kong GDP in 2020 from minus 4% to minus 7%. Natixis says negative consumer sentiment implies that Hong Kong's unemployment rate could deteriorate from 3.3% in 2019 to between 7% and 8% in the second half of 2020.

Hong Kong's third wave comes at a time when retail sales and consumer sentiment have just started to pick up from a very negative level, Natixis says.

"Given the bigger mobility reduction this time because of containment measures, retail sales are likely to head south again -- and the question is by how much."

Natixis takes the example of Singapore's  "Circuit Breaker" in detailing its outlook for Hong Kong retail sales.

"Both Hong Kong and Singapore have been hit by the plummeting number of tourists since the beginning of 2020," it says.

"The Singapore Government implemented the Circuit Breaker from April 7 to reduce social distance and further infections. As a result, retail sales fell 36% month-on-monteh in April 2020, recoveringc to -15% montdh-on-month in May 2020.

"Compared to Singapore, the reduction in mobility in Hong Kong is lower in terms of domestic and international mobility, but the difference is now shrinking.

"Mobility for retail and recreation in Hong Kong fell as much as 50% in July 2020 compared to the level before the (third) coronavirus outbreak, which is lower than the second wave during April 2020.

"With the rapidly-climbing number of COVID-19 cases, mobility is likely to deteriorate further in August 2020 and drag retail sales."

Natixis says that due to the uncertain global situation, Hong Kong probably cannot open borders to non-residents for the rest of 2020, with a diminishing chance of setting up meaningful travel bubbles.

"As such, Hong Kong's retail sales for 2020 could decline 34% under the current containment measures, and fall more aggressively by 41% with a Singaporean-type Circuit Breaker approach," Natixis says.

"This is a downward revision from the original forecast of a 20% decline before the third wave of the outbreak."  (ATI).