Retail sales in Hong Kong are expected to decline 34% in 2020 under current measures to contain a third wave of Covid-19 infections in the city, and could drop by 41% if tighter restrictions are implemented, Natixis says in a report. This is a downward revision from its forecast of a 20% decrease before the third wave of the outbreak.

And since retail-related sectors account for 15% of total employment, the negative consumer sentiment implies the unemployment rate could deteriorate from 3.3% last year to 7 to 8% in the second half of 2020, depending on the degree of the outbreak and the strength of the containment measures if there is no additional fiscal support, the French lender says. The higher vacancy rate in retail properties also indicate businesses are being forced to scale down even if rents are coming down, further pushing up unemployment.

Given the importance of consumption for the local economy, Natixis has lowered its forecast for the city’s GDP growth from -4% to -7% for 2020.

“Hong Kong is facing a deeper economic quagmire owing to a third wave of Covid-19 infections. This comes at a time when retail sales and consumer sentiment have just started to pick up from a very negative level,” says Alicia Garcia Herrero, the bank’s chief economist for Asia Pacific. She is calling for more targeted and stronger fiscal stimulus for the highly affected sectors to smoothen the negative shocks, especially in the labour market.