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Hong Kong Economy Recovering from SARS Epidemic - 2003-08-12

Hong Kong's economy is recovering faster than expected from the slump caused by the SARS crisis. Financial analysts are making new predictions about the disease's impact.

When Severe Acute Respiratory Syndrome hit Hong Kong earlier this year, countries around the world warned their citizens to avoid visiting the city, crippling the tourism industry. Hong Kong residents, afraid of catching the potentially deadly disease stopped eating out, going to movies, and shopping.

That left the city's shops, hotels and restaurants empty. Companies fired workers, and economic analysts predicted the city might take months to recover.

Don Hanna, with the Citigroup investment bank, was one of those analysts. He cut his forecast for Hong Kong's economic growth by more than half, to one percent. Now, however, he says the damage might not be so severe. "What the impact of SARS is going to be in terms of the overall performance on the Hong Kong economy, we think that effect is more muted that we had earlier looked for," says Mr. Hanna.

One of the Hong Kong companies hardest hit by the SARS crisis was Cathay Pacific Airways - the territory's largest airline. The number of passengers passing through Hong Kong's airport plunged 70 percent. For Cathay, that translated into a loss of about $159 million for the first six months of the year - compared with net profit of $181 million a year ago.

However, Kevin O'Conner, transportation analyst with investment bank CLSA in Hong Kong, says the record loss was not as deep as expected. "If you look a Cathay Pacific results last Wednesday it was simply that revenues were better than expected. They were better because average ticket prices hadn't fallen as much as we expected," he says.

Hong Kong companies were quick to cut costs by laying off workers during the SARS outbreak. Marcus Rosgen is an equity analyst with ING investment bank and he says that might have saved many businesses. "Over four years of outright deflation, Hong Kong companies have been very good at actually reducing their cost base."

SARS, or Severe Acute Respiratory Syndrome, originated in mainland China in November but spread to Hong Kong in February and eventually infected just over 1,700 people in the territory by June. About 300 people died of the disease in Hong Kong by June, when the last case occurred.