Hong Kong’s economy has tumbled into its deepest recession since the financial crisis as months of pro-democracy protests forced shops to close, paralysed public transport, deterred tourists and slashed business investment.
According to official data released yesterday, the economy shrank 3.2% during the three months to September, compared to the previous quarter. That represents a sharp slowdown from the 0.5% contraction recorded in the second quarter, and much worse than economists had expected.
CNN says “as a major trading hub, Hong Kong was already hurting from the US-China trade war and China's slowing growth” while the BBC reports that “a weaker yuan has hit spending from mainland visitors and bruised consumer sentiment”.
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Five months of mass demonstrations is now pushing the city toward an economic crisis.
Private consumption dropped 3.5%, fixed capital formation - or investment - collapsed by 16.3%, exports of services were down 13.7% and those of goods down 7%, while imports of goods fell 11.1% and services 3.8%.
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Visitor numbers plunged 37% year on year for the third quarter while hotels are on average only two-thirds full, a drop of 28% compared to the same period a year earlier. Many shops, meanwhile, have been forced to close early or shut down altogether over the past few months, while some have been targeted for their perceived pro-Beijing stance.
With the US-China trade war dragging on GDP, The Daily Telegraph says “the city can expect little respite as Beijing and Washington issued increasingly hostile statements in the latest sign that the spat between the world’s two largest economies will not be resolved soon”.
With some economists predicting the downturn will worsen in 2020, the Hong Kong government has begun rolling out measures to stimulate the economy. These include tax cuts and boosts to social security, as well as relaxing mortgage rules for first-time buyers. “But the administration, which holds a war chest of HK$1.1tn ($140bn) in fiscal reserves, has refrained from widescale stimulus,” says the Financial Times.
Speaking to business leaders yesterday, Hong Kong’s embattled Chief Executive Carrie Lam said: “What’s happening in Hong Kong now is unprecedented,” adding it is “inevitability the economy will be hard hit” but that “frankly, there is no room for optimism”.
Yet despite the troubled Hong Kong economy, there is one ray of sunshine in the shape of the city's financial markets. The Hang Seng Index (HSI) is still up 4% for the year, “and the political crisis hasn't been a deal breaker for investors yet, many of whom still see the city as an important gateway to Asia” says CNN.
