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The Hong Kong Government recorded a better than expected economic performance for the first quarter of 2003 - a 4.5 per cent year on year increase in GDP, 0.5 per cent higher than forecasted. However, with the SARS outbreak, the loss in GDP for April and May alone amounted to HK$3.8billion. The government and most of the private sector analysts adjusted the 2003 GDP growth rate downward by 0.5 to 2.5 per cent.

In light of the sudden and drastic influence brought about by SARS, the Asia Case Research Centre conducted a study of the impact of SARS on the Hong Kong economy and will continue to monitor its impact on Hong Kong's competitiveness.

In our preliminary study which focuses on the general industry issues, we have interviewed industry leaders to obtain their views on general SARS impact and actions taken or to be taken by companies to deal with the crisis. More importantly, with news coverage emphasising the negative consequences, we are interested in finding out potential long-term positive outcomes.

We would like to express our gratitude to the following industry leaders for their participation in this study1 :

Mr. Felix Chan Chairman Hong Kong Chamber of Small & Medium Business Ltd.
Mr. Yu Pang Chun Chairman Hong Kong Retail Association
Mr. Robert Cutler Chairman Board of Airline Representatives Hong Kong
Mr. Andrew Hirst Exec. Committee Hong Kong Hotels Association
Mr. Stephen Ip Secretary General Hong Kong Logistics Association
Mr. Michael Leung Executive Director Hong Kong Textile Council
Ms Rona Morgan Secretary Hong Kong Association of Banks
Mr. Mike Wong Exec. Committee Association of Accredited Advertising Agents of HK
Mr. Michael Wu Chairman Hong Kong Association of Travel Agents
Mr. Lun Chi Yim Chairman Hong Kong Real Estate Agencies General Association
Mr. Paul Yin President The Chinese Manufacturing Association of Hong Kong

As a result of the interviews and further research on the issues, we have put together situation summaries of the following industries:

We examined the impact of SARS by comparing key economic indicators before and after the outbreak. In Part I of this overview, we look at the change in 2003 GDP forecasts by the Governments and other authorities.

We monitored the trends of post-outbreak recovery since the SARS situation stabilised in May. In Part II of this overview, we analyse the characteristics of industry groups and identify leading and lagging industries in the recovery cycle.


2003 GDP Growth Rate in Real Terms (%)2

  Before 31 March 2003 As at 31 May 2003 Change
Hong Kong Government 3.0 1.5 -1.5
International Organisations      
International Monetary Fund 3.0 2.2 -1.8
Asia Development Bank
2.8 -1.4 to 0.8 -2 to -4.2
World Bank 2.7 2.0 -0.7
Major local banks
Hongkong Bank
1.6 0.5 -0.9
Standard Chartered Bank
3.5 0.5 to 1.0 -2.5 to -3.0
Hang Seng Bank
2.3 0.8 -1.5
Bank of China (Hong Kong)
2.8 0 to 1.5 -1.3 to -2.8
Bank of East Asia 2.0 1.6 -0.4
Investment banks
JP Morgan Chase
3.7 1.0 -2.7
Goldman Sachs Asia
3.0 1.7 -1.3
Morgan Stanley Asia
2.7 2.1 -0.6
Merill Lynch 4.6 3.1 -1.5
Credit Suisse First Boston
2.6 1.8 -0.8
Economist Intelligence Unit
2.7 0.3 -2.4
Hong Kong General Chamber of Commerce 2.1 1.5 -0.6

With the spread of SARS since mid-March, almost all the forecasters have trimmed down their GDP growth forecasts for Hong Kong in 2003. The impact of SARS is reckoned by most of them to have dragged down Hong Kong's GDP in 2003 by 0.5 to 2.5 percentage points. The latest forecasts of the growth rate in real terms of GDP for 2003 from the private sector analysis listed above range from 0% to 3.1%.3

Forecast growth rates of the main GDP expenditure components and forecast rates of change in main price indicators for 2003 4

  Forecast %
as at 5 March 2003
Forecast %
as at 30 May 2003
Growth rate in real terms of:
Private Consumption Expenditure
0 -3
Government Consumption Expenditure
2.5 4
Gross Domestic Fixed Capital Formation
0.9 -5.5
Total Exports of Goods
6.6 5.5
8.0 7.5
Domestic exports
-8 -15.0
Imports of Goods
6.3 2.9
Exports of Services
8 -2.0
Imports of Services 1.5 -13.5
Gross Domestic Product (GDP)
3 1.5
Rate of change in:
GDP Deflator
-2 -3.5
Composite Consumer Price Index -1.5
Rate of change in Nominal GDP 1.2 -2.0

As shown in the above forecast, all components of GDP are forecasted to contract except the Government consumption expenditure. This implies the second half of 2003 will be a tough time for businesses. Nevertheless, the GDP is still forecasted to be a positive growth of 1.5 per cent for the year 2003. From the observation of the first quarter performance, merchandise and service exports are important contributing factors on GDP, hence, the actual year end growth figure will very much be dependent upon the recovery of these two sectors.


Weekly Effects of SARS on Business

  Weekly Average % Change in Current Business Receipts as Compared with the Normal Situation Forecast change in business receipts in the next 3 months
Date 20-26 Apr 27 Apr - 3May 4-10 May 11-17 May 18-24 May 25-31 May As compare with 18-24 May (%)
Average new reported SARS cases (no. of cases) 24 13 8 5 2 2  
Retail -32.3 -29.4 -26.3 -21.8 -20.5 -17.8 +4.5
Restaurants -43.6 -41.8 -36.8 -28.5 -27.2 -22.6 +4.1
Hotels -75.2 -76.3 -78.9 -77.9 -76.3 -75.9 +31.3
Travel Agents & Airline Ticket Agents -57.3 -60.8 -57.3 -57.2 -55.2 -50 +32
Airlines -65.0 -65.0 -65.0 -65.0 -65.0 -60.0 +50
Taxi Companies -40.6 -41.1 -40.2 -41.1 -38.3 -38.3 -9.3
Sanitary & similar services +2.7 +2.2 +2.8 +2.5 +2.8 +2.8 -0.6
Cinemas -55.1 -54.7 -54.3 -45 -35.3 -13.7 +14.9
Insurance -0.6 -3.9 -2.7 -1.9 -3 -0.6 -1.6
Real Estate Agents -4.9 -9 -7.5 -6.5 -1.5 -2.5 +3.5
Property Developers -3.4 -9.6 -9.6 -5.1 -4.1 -3.1 +1.4
Imports & Exports -6.2 -7.2 -6.3 -5.1 -4 -2.6 -0.6
Manufacturing -6.2 -4.8 -8 -5.2 -7.9 -7.8 -4.5
All selected sectors -11.2 -11.7 -11 -9.2 -8.5 -6.9 +1
Source of Information: Economic Analysis Division of Financial Services and the Treasury Bureau and Census & Statistic Department 5as quoted in Hong Kong Economic Times 31 May 2003.

From the analysis of the above data, we observed a few industry groups' characteristic and trends that could provide us with some insights on the phases of business rebound:

Group 1 Industries: Cinema & theatres, retail, restaurants and taxi are categorised as Group 1 industries. These industries were also badly hit by the SARS outbreak. Even though we do not have comparable data for the period from end of March to mid April from the same information source, according to data collected through research and interviews, Group 1 industries hit rock bottom at the end of March, at the time of the Amoy Garden outbreak. According to industries sources, revenue dropped by 70 per cent since the SARS outbreak in mid-March and further deteriorated to a 90 per cent drop after the Amoy Garden outbreak on the last weekend of March and the dire situation carried on to the first two weeks of April. At the end of April, as illustrated in the table above, business has improved to 55 to 70 per cent of normal level. There was a steady upward trend as time progress and apart from taxi companies both the retail and restaurant industries were optimistic about the future 3 months.

Another characteristic of Group 1 industries is that domestic consumption is a major contributor to their businesses. The steady upward trend before the lifting of travel advisory was attributable to various factors affecting local consumption e.g. public holiday on 8 May, Mother's Day Weekend and promotional deals like the "We Love HK" campaign.

Cinema & theatres recorded a sharp rise in business during the week of 24 May, this was probably attributable to the jubilant sentiment of Hong Kong people after the good news of travel advisory removal announced on 23 May. The business is forecasted to adjust back to pre-announcement level in the next 3 months.

Since 25 May, apart from taxi companies which were in the process of changing their pricing policy, all industries in Group 1 saw a steady grow to 90 per cent of their normal level.

Group 2 Industries: Hotels, Airlines and Tourism Industries can be categorised into Group 2 industries. At the end of April, they all recorded a drop of more than 50 per cent of their revenue. The hotel industry was worst hit with business receipt only at 25 per cent of normal level. However, this group of industries also demonstrated the most optimistic outlook for the 3 months starting June 2003. Unlike Group 1 industries whereby domestic consumption came to rescue, Group 2 industries are in the service exports industry and rely heavily on tourists and international travellers' flow.

Since the lifting of travel advisory by the World Health Organisation (WHO) on 23 May, the travel agents have become noticeably better, climbing back to more than 70 per cent of normal time partly contributed by the surge in local tours. Airlines and hotels also showed signs of recovery, though at a slower pace. Since June, airline businesses have gradually climbed back to above 50 per cent level. Hotels have been lagging behind, 30-40 per cent level. The airlines carry passengers both coming in and out of Hong Kong, whereas for hotels, they rely on inbound tourists, of which 40 per cent are from the mainland China. As long as China is still battling with SARS, the hotel industry will still be seriously affected.

Group 3 Industries: Real Estate Agents and Developers, Sanitary Services, Insurance, Imports & Exports and Manufacturing were grouped together because they were not much affected negatively by SARS. At the end of April, Group 3 industries had business receipts ranging from 90 to 102 per cent as compared with normal circumstances. The trend has been steady since. However, this group of industries was pessimistic about the future and they forecasted a downward trend in the 3rd quarter of 2003. This could be explained by the fact that these industries have a long lead-time, usually 3 to 6 months, hence the effect of SARS will not be apparent from March to May during the outbreak. For sanitary and similar services, the industry actually recorded growth by a few percent.

SARS' Phases of Rebound

Looking at the trends and characteristics of different industries, we noticed that Group 2 industries could forecast the phases of rebound under the SARS crisis. Retail and Restaurants Industries (Group 1) can be regarded as Leading Industries which will be recovered first (given that there will be no second round of outbreak). These industries have already shown signs of rebound in end April and continue the upward trend contributed by domestic consumption stimulants.

Group 2 industries are characterised by their reliance on international traffic flow and external factors. Business experienced a sharp decline as soon as the travel advisory was issued by WHO. With the lifting of travel advisory, the industry immediately adjusted their forecast to a positive trend, even though the climb will not be as quick as the dive, the 3rd quarter will nonetheless be more upbeat than the 2nd quarter. Therefore, group 2 industries will be the 2nd wave in the recovery cycle.

Group 3 industries can be regarded as Lagging Industries. The negative impact of SARS on these industries will only become apparent in the 3rd quarter of 2003. The real estate markets are dependent on the overall economic performance and under the current market climate, people defer their purchase decision to the second half of 2003. Manufacturing, Imports & Exports experienced difficulties in obtaining orders during March to May, which means the impact on production and delivery will appear later than May. The recovery of these industries will not happen before the last quarter in 2003.

The insurance industry should not have a big fluctuation. Despite the increasing number of medical claims during SARS, peoples' awareness on health protection is raised resulting in higher number of insurance policies subscriptions. The sanitary and related industries are the "beneficiaries" of the SRAS crisis because demand from the general public on hygiene related products jumped through the roof overnight. However, it is forecasted that the demand is only for short to medium term, it will eventually recede along with the diminishing infected case reported.

In Figure 4, different Group averages were used and from the trend-lines, it showed that Group 2 industries are mostly affected and their recovery is dependent upon external factors such as how foreign nationals view the hygiene level and safety of Hong Kong. Group 1 industries have been recovering quickly and within the next month (July) business will be back to normal. Group 3 industries are least impacted by SARS due to industry-specific characteristics of longer lead-time, less event-sensitive customer demand.

Last Modified Date : Thursday, July 09, 2015 10:12:13 AM

  1. Telephone interviews were conducted during the period 14-22 May 2003.
  2. 2003 GDP and price forecasts for Hong Kong, Financial Services and the Treasury Bureau, Hong Kong SAR Government, 2 June 2003.
  3. 2003 GDP and price forecasts for Hong Kong, Financial Services and the Treasury Bureau, Hong Kong SAR Government, 2 June 2003.
  4. 2003 GDP and price forecasts for Hong Kong, Financial Services and the Treasury Bureau, Hong Kong SAR Government, 2 June 2003.
  5. The first SARS case was reported in mid March, please note that data only available from week ending 26 April 2003.
  6. Tourism industries includes travel agents and airline ticketing agents.