Officials on Monday said Hong Kong’s economy shrank 1.2% last year as massive pro-democracy protests paralyzed the city’s streets and scared away tourists. GDP shrank 2.9% in the fourth quarter alone. The trade spat between Washington and Beijing compounded the problem, as did concerns about China’s economic growth.

Until recently, the Asian financial hub had reason to hope that 2020 would be better. The demonstrations were becoming less frequent, while an initial trade deal provided some hope that the relationship between the United States and China could improve.

“The US-China phase one trade deal and growth stabilization in China should have been positive for Hong Kong’s near-term economic outlook,” said Tommy Wu, a senior economist at Oxford Economics. “But it has been overshadowed by the coronavirus outbreak.”

Hong Kong now has to worry about how to stave off a dangerous epidemic that spurred government officials to cancel school for weeks, order civil servants to work from home and urge private companies to do the same. Retail stores, theme parks, cultural attractions and other hotspots also remain closed. Crowds are still common, but most people are wearing face masks as a form of protection.

The coronavirus “will definitely cause a double blow to the economy,” Hong Kong Financial Secretary Paul Chan wrote in a Sunday blog post. He added that the virus “will greatly increase the risk of continued economic contraction this year.”

The Hong Kong government said Monday that the city’s economic outlook this year is “subject to high uncertainties,” including the global economy, trade and the protests. As for the coronavirus outbreak, the government said it would “monitor the situation closely.”

Hong Kong, which has some level of autonomy from mainland China and its own immigration system, has managed to avoid the worst of the outbreak. Only 15 cases have been confirmed in the city, and there have been no deaths. Just over the border in mainland China, the number of confirmed cases totals more than 17,000, while at least 360 people have died.

But the memory of 2003’s SARS crisis looms large in Hong Kong, reminding its people of the toll a serious disease can take on the city. More than 280 of the 774 people who died from SARS were reported in Hong Kong, the highest death toll outside of mainland China. The SARS scare caused the city’s economy to shrink 0.5% in the second quarter before it rebounded later in the year.

A ‘double whammy’ for businesses

Last year’s protest movement led millions of Hong Kongers to take to the streets and demand democratic and police reforms. Some clashes between protesters and police became violent, and tear gas, petrol bombs, rubber bullets and water cannons became part of the city’s new normal.
The protests hit the city’s hospitality and food and beverage industries particularly hard. Many people just stopped going out, fearful that if they strayed too far from home they would find themselves accidentally caught up in a demonstration or cut off from public transportation.

Despite the turmoil, the hospitality industry had been showing signs of recovery in December, according to Allan Zeman, the founder of the property developer Lan Kwai Fong Group.

“It’s kind of a double whammy for Hong Kong,” said Zeman, whose company developed the popular Hong Kong nightlife district Lan Kwai Fong.

“We were hoping that going into the Year of the Rat that this would continue,” he added, referring to this year’s Lunar New Year zodiac. “Suddenly, the coronavirus hit.”

Black Sheep Restaurants, a group that runs more than 20 Hong Kong businesses, echoed that show of progress, along with concerns about the virus.

“Things were on the up at the end of last year and first couple of weeks of [January],” Co-founder Syed Asim Hussain told CNN Business in an email. “However we are now again between a rock and a hard place.”

Hussain said the company’s main concern is the safety of its team. But he added that Black Sheep expects February to be slow, potentially leading to a “financial write off” for the first quarter.

Tourism is another major concern for the city. The protests already took a heavy toll on the industry: The number of people who visited Hong Kong in November plunged by nearly half compared to a year earlier, according to the latest available government figures.
The coronavirus outbreak will likely exacerbate that problem. Most of Hong Kong’s visitors come from mainland China, where many cities have placed their residents on lockdown. Hong Kong has also closed some of its border crossings into the mainland in an attempt to stop the virus from spreading.

Too early to tell

What’s still uncertain is how dramatic and long lasting the effects of the coronavirus will be on Hong Kong’s economy.

Iris Pang, an economist at ING, told CNN Business that she expects retail to be moderately affected by the outbreak, noting that last year’s protests caused those businesses to take a big hit. But she added that ING doesn’t think the virus will have a substantial impact on GDP.

Goldman Sachs on Friday cut its forecast for Hong Kong’s economic growth in the first quarter from 5.6% to 4%. The analysts attributed that in large part to how the virus will impact the city’s tourism, retail, hospitality, and food and beverage industries.

The bank warned that things could get worse, and that a prolonged outbreak could lower full-year economic growth to 5% or less.

Wu, of Oxford Economics, said the virus could have a “drastic” impact on the economy.

“Some sectors are doing better — like supermarkets, drugstores etc. But shopping malls and luxury brands will likely be hit badly,” he said.

Wu added that the problem isn’t just about the lack of tourism in the city, but about how much people who already live in Hong Kong will spend as worries about the spread of the virus grow.

Zeman, of Lan Kwai Fong, the said it’s too early to tell how bad the effects will be, since a lot of businesses are just now getting back to work after the Lunar New Year. The holiday ended last Wednesday, but many in the city typically take the whole week off.

But the government-mandated closures of schools and some public facilities, along with official encouragement that people stay indoors, will likely mean an uncertain future for many businesses.

“It’s not an easy situation, because at the moment, there’s no light at the end of the tunnel,” said Zeman. “I know many of my tenants, I don’t know if they can survive.”

— Sherisse Pham and Michelle Toh contributed to this report.