HK economy expected to shrink 1.3% for the year amid protests

November 15, 2019 18:20
People walk past bricks placed by anti-government protesters to barricade a road in Central on Friday. Photo: Reuters

Hong Kong has revised down its estimate for economic growth this year amid increasingly violent anti-government protests and trade tensions between the United States and China.

The government is now forecasting a contraction of 1.3 percent for the whole of 2019 versus an earlier estimate of 0-1 percent growth. That would mark the first annual decline since 2009.

The city sank into recession for the first time in a decade in the third quarter, government data confirmed on Friday.

The economy shrank by 3.2 percent in July-September from the previous quarter on a seasonally adjusted basis, revised government data showed, in line with a preliminary reading.

Gross domestic product (GDP) contracted for the second consecutive quarter, meeting the technical definition of a recession.

With no end to the protests in sight, analysts warn the financial and trading center potentially faces a longer and deeper slump than during the global financial crisis in 2008/2009 and the SARS epidemic in 2003.

From a year earlier, the economy contracted 2.9 percent, also in line with the preliminary reading. The readings were the weakest since the global financial crisis.

“Domestic demand worsened significantly in the third quarter, as the local social incidents took a heavy toll on consumption-related activities and subdued economic prospects weighed on consumption and investment sentiment,” the government said in a statement.

“Ending violence and restoring calm are pivotal to the recovery of the economy. The government will continue to closely monitor the situation and introduce measures as necessary to support enterprises and safeguard,” it said.

More than five months of political protests have plunged the city into its worst crisis since it reverted from British to Chinese rule in 1997.

Retailers reeling

Tourists are canceling bookings, retailers are reeling from a sharp drop in sales and the stock market is faltering, adding to pressure the city is feeling from China’s economic slowdown and the prolonged Sino-US trade dispute.

August retail sales were the worst on record – down 23 percent from a year earlier – while September’s plunged 18.3 percent.

While the overall unemployment rate rose only slightly to 2.9 percent in the July-September period, government economist Andrew Au Sik-hung said certain sectors were much harder hit, RTHK reported.

The jobless rate for the food and beverage sector, for example, rose to 6 percent, a six-year high, the broadcaster quoted Au as saying.

He said the unemployment picture may worsen further, with lower-skilled workers likely to be more affected.

Parts of the city were paralyzed for a fifth day on Friday. Transportation disruptions have become common and some shopping malls and other businesses are shuttering early as the unrest escalates.

Hong Kong is one of the world’s most important financial hubs with total banking, fund and wealth management assets worth more than US$6 trillion.

Many businesses with ambitions to expand in China still consider it as a gateway into the mainland, while Chinese firms use it to access international capital, as well as a testing ground and springboard for their global ambitions.

Business activity in the private sector fell to its weakest in 21 years in October, according to IHS Markit, while demand from mainland China declined at the sharpest pace since the survey began in July 1998.

The government has rolled out stimulus measures since August, but since it is forced to keep a high level of reserves to back the Hong Kong dollar peg to the US currency, the packages have been relatively small.

Analysts also doubt the effectiveness of handouts, since the uncertainty prevents businesses and consumers from spending and investing, and store closures will lead to job losses. With Reuters

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(Updated; last posted at 5:15 p.m.)