Hong Kong on Tuesday announced an unexpected easing of coronavirus social distancing restrictions as the Asian financial hub released data showing its first economic contraction since the start of the pandemic.

Hong Kong’s easing of Covid-19 measures stands in stark contrast to the continued strict measures in mainland China, where residents in parts of Shanghai remain confined to their homes and Beijing is on the brink of lockdown.

Official data showed Hong Kong’s gross domestic product contracted by 4% in the first quarter of the year compared to the same period of 2021, a performance much worse than the 1.3% reduction estimated by economists polled by Bloomberg.

Economists said the contraction showed the heavy burden that the Chinese government’s tough “zero Covid” policy has placed on Hong Kong.

City leader Carrie Lam said a drop in Covid cases since its worst outbreak earlier this year has allowed beaches and pools to reopen from this Friday and allow up to eight people having dinner together.

“We were worried. . . there could be an increase in confirmed cases, luckily that hasn’t happened and we see the outbreak stabilizing,” Lam said on Tuesday.

But economists said the latest data was a warning signal about the attractiveness of the financial hub, which remains tied to China’s overall Covid policy and maintains tight controls on international travel.

“[The GDP figures are] well below market expectations,” said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets.

“Hong Kong was hit by the Omicron outbreak, but the other surprise was that while we saw a drop in services exports and private consumption… there was also a significant drop merchandise exports,” Lai said.

Lai added that exports have slowed due to lower demand and border closures between Hong Kong and the mainland, as well as lockdowns in Chinese cities.

Singapore, South Korea and Taiwan recorded GDP growth of more than 3% in the first quarter, he added. “So with zero-Covid. . . Hong Kong was particularly hard hit.

From May 19, a host of other venues ranging from bars to mahjong parlors will reopen and cruises will also be allowed to restart. Restaurants can open until midnight, from 10 p.m. before. Bars can open until 2 a.m., but only four people will be allowed per table.

Hong Kong will maintain its strict quarantines on arriving travelers and continue to ban air connections if a number of Covid-positive passengers are discovered on a flight.

The severe restrictions have helped trigger an exodus of residents and expats and caused some global companies to rethink the size of their presence in the city.

Hong Kong recorded an 8.3% decline in gross domestic fixed capital formation – a measure of investor confidence – in the first quarter.

“Hong Kong companies are screaming, especially foreign companies, and this sharp drop in the investment position is very telling,” Lai said.

The city’s reputation has also suffered from the crackdown on free speech that followed the 2019 anti-government protests.

Hong Kong fell 68 places to 148 out of 180 countries in the 2022 Press Freedom Index released on Tuesday, now occupying a position similar to that of Sri Lanka, the Philippines and Turkey. This is the fourth largest year-on-year drop in the rankings since the index was first compiled in 2002, according to analysis by the Financial Times.

Lam insisted Hong Kong’s press and media were “as vibrant as ever”, but journalists and media organizations were “not above the law”.