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Hong Kong's financial system has hit all-time low and can get well, says the economist

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SINGAPORE – According to one economist, after two years of anemic growth, there could be some good news for the Hong Kong economy.

"I honestly think there is a lot of headwinds ahead for Hong Kong," said Hao Zhou, a leading economist for emerging markets at Commerzbank.

"But from a GDP perspective … the Hong Kong economy has likely bottomed out this year. After two years of sluggish growth, we are likely to see positive growth for the next year and 2022 as well," he told CNBC's "Squawk Box Asia "" on Thursday.

The third quarter of this year was Hong Kong's fifth consecutive quarter of contractions from a year earlier, but there were also signs of recovery. The economy contracted 3.5% from July to September compared with a 9% decline in the previous quarter.

The government also revised its 2020 real GDP forecast from a decline of between 6% and 8% to a decline of 6.1%.

The most important is not Hong Kong and the United States – I think the most important could be China and the US.

Hao Zhou

Senior Emerging Markets Economist, Commerzbank

However, Covid-19 cases have recently recovered in the city, prompting authorities to reintroduce restrictions.

But in general, the recovery from Covid across Asia, led by China, will benefit Hong Kong going forward, Zhou said.

The Asian financial center's economy has been hit hard by successive crises: from the US-China trade war that intensified in 2018 to the month-long protests that closed stores last year and hit tourism hard. Now Hong Kong is also facing the challenges of controlling the pandemic and its economic impact.

Relations between the US and Hong Kong under Biden

The incumbent US President Donald Trump revoked Hong Kong's special trade status with the United States earlier this year. It was in response to China's approval of a proposed security law that would effectively bypass lawmakers in the Special Administrative Region.

However, with the new administration of President-elect Joe Biden in January, questions have been raised about what this means for Hong Kong's relationship with the US.

Zhou pointed out that it is not a good sign for Hong Kong while tensions remain between the US and China.

"It's going to be very, very difficult. The most important thing is not Hong Kong and the United States – I think the most important could be China and the United States," said Zhou.

"This kind of global competition between China and the US will continue. In this case, the road to countering these geocritical dynamics will still be basically very challenging for Hong Kong … in the short term," he told CNBC.

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Katherine Clark