Fitch downgrades Hong Kong's rating on worsening outlook

Ratings agency expects territory's GDP to fall 5% this year, after a 1.2% drop in 2019

A public cargo loading area known as 'Instagram Pier' in Hong Kong. The city's government banned public gatherings of more than four people from March 29 to try to contain the spread of Covid-19. AFP

Fitch Ratings downgraded Hong Kong as an issuer of long-term, foreign currency debt saying that the city is facing a “second major shock” from the coronavirus after prolonged social unrest last year.

Hong Kong’s rating was lowered to AA- from AA with a stable outlook, with real gross domestic product expected to fall by 5 per cent this year after a 1.2 per cent decline in 2019, Fitch said in a report on Monday.

“Efforts to contain the spread of the virus locally appear to be gaining traction, but risks to our forecast remain to the downside and dependent on the evolution of the pandemic globally, given Hong Kong’s status as a small, open economy,” analysts at the ratings agency wrote.

Fitch downgraded Hong Kong’s rating to its lowest level since 2007, putting it below that of markets such as Macau and on par with the likes of the United Kingdom.

The Hong Kong government said it was “disappointed” with Fitch’s assessment.

The pandemic is the latest blow to Hong Kong’s economy, threatening to further extend a recession that began in 2019.

The city’s shops and businesses buckled under the full force of the coronavirus outbreak in February as retail sales plummeted by the most on record amid growing travel restrictions and social-distancing measures.

Consumption in the city has been severely curtailed as mainland China tourists stopped visiting last year and residents have been staying at home to avoid infection during the coronavirus outbreak. The jobless rate rose for a sixth straight month in March to the highest level since October 2010.

Efforts to contain the virus’s spread have led to a contraction in economic activity that has prompted policymakers to announce the most expansionary budget in the territory’s history, said Fitch.

Authorities are introducing a host of supportive measures to ease financial pressures including an $18 billion (Dh66.1bn) stimulus package aimed at securing job retention.