HONG KONG: Hong Kong is set to end 2022 in the midst of a full-blown recession, its finance chief warned on Thursday, as spiraling interest rates join strict Covid-19 controls in hammering the city’s economy.

“There is a very high chance for Hong Kong to record a negative GDP (gross domestic product) growth for this year,” Financial Secretary Paul Chan told reporters, adding that interest rates were being raised “at a pace that was never seen in the past three decades.”

Hong Kong’s monetary policy moves with the Federal Reserve because its currency — one of the cornerstones of its business hub reputation — is pegged to the United States dollar.

The Fed’s hawkish rate hikes, aimed at curbing soaring inflation, come at an especially difficult time for Hong Kong, dampening sentiment when its economy is already struggling.

The city is currently in a technical recession after recording two consecutive quarters of negative growth this year.

The government has adhered to a version of China’s zero-Covid policy for nearly three years, enforcing strict coronavirus controls and mandatory quarantine for international arrivals.

Quarantine, once as long as three weeks, has been reduced to three days. The government has signaled it may soon join the rest of the world in scrapping travel curbs.

Chan indicated his support for making travel and business easier.

“The aspects related to the pandemic need to continue to improve in order for us to see larger investments because people are more cautious in a high interest rates environment,” he said.

Business leaders have long been warning that the pandemic controls, combined with Beijing’s ongoing crackdown on dissent, have made it harder to attract talent and cut off Hong Kong internationally, especially as its rivals reopen.

The city has seen a net outflow of more than 200,000 people in the last two years, a record population drop.

“Hong Kong should be ahead of other Asian cities. But now there’s a feeling that we’re falling behind and being left isolated,” Eden Woon, the new head of the city’s American Chamber of Commerce, told the South China Morning Post newspaper in an article on Thursday.

“There are people leaving and the problems of retaining talent. All these things add up together and need to be addressed,” he added.

But earlier this week, a senior Chinese official said it was “inappropriate” to say the city was seeing an exodus.

“Hong Kong’s population drop is caused by various factors and there is no way to suggest that it is a result of an emigration wave,” Huang Liuquan, deputy director of the Hong Kong and Macau Affairs Office, said on Tuesday.

The Fed’s rate hikes hit Hong Kong’s stock market, which fell as much as 2.6 percent on Thursday to 17,965.33, the lowest since December 2011. It pared some of those losses by the close, ending down 1.6 percent.

The Hang Seng Index has been one of the worst performing top bourses in the past two years, shedding more than 22 percent since the start of January following last year’s 14-percent drop.

While the Hong Kong Monetary Authority has no choice but to follow the Fed, major banks such as Standard Chartered and HSBC have resisted that pressure.

But on Thursday, both banks hiked their prime lending rates in the city by 12.5 basis points, their first raise in years.

That could impact the city’s once white-hot property sector, with the Goldman Sachs Group estimating that prices may slide by about 20 percent over the next four years.

Hong Kong also saw a recession in 2019 when months of huge and sometimes violent democracy protests rocked the city.