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Hong Kong crashes into recession as protests hit economy
[HONG KONG] Hong Kong's economy contracted sharply in the third quarter as it entered a recession, exceeding economists' worst estimates of the damage from nearly five months of protests.
Third-quarter gross domestic product retreated 3.2 per cent from the previous three months, after a 0.4 per cent contraction in the second quarter. That's the worst slump since 2009, in the aftermath of the global financial crisis. Two consecutive periods of negative growth mean Hong Kong has fallen into a technical recession.
The economic debate now is focused on how long the downturn will last, if recent glimmers of stabilization point to a bottom, and if the US-China trade war and the demonstrations have done lasting damage. Financial Secretary Paul Chan said this week that a full-year economic contraction is "very likely."
"I expect the fourth quarter to contract as well," said Tommy Wu, senior economist with Oxford Economics Ltd in Hong Kong. "The downside risk is that the political unrest will continue beyond the fourth quarter and into next year."
Compared to the same period a year earlier, GDP contracted 2.9 per cent versus the median estimate of -0.3 per cent
Hong Kong's economy is "very likely to record a negative growth for 2019 as a whole"
The data are a preliminary assessment; revised 3Q GDP figures will be released on Nov 15.
The Hong Kong Monetary Authority cut its benchmark interest rate Thursday, in line with the city's currency peg to the dollar following the US Federal Reserve's reduction in borrowing costs. The move is unlikely to have much bearing on the local cost of borrowing, as lenders don't necessarily pass on the rate to the public.
The city hasn't seen significant capital outflow amid the unrest, HKMA Chief Executive Eddie Yue said at a briefing. The Hong Kong dollar rate, deposit level and exchange rate are broadly stable, he said.
The city's economy has shown the faintest of positive glimmers since the protests' initial impact this summer, when tourists began staying away. Small business sentiment has ticked higher, as has a gauge of the outlook among purchasing managers, though both remain close to their record lows. The real estate and financial services sectors have remained fairly resilient.
One of the biggest factors in determining if Hong Kong will recover - and how soon - is whether mainland Chinese tourists scared away by the protests will return. In the aftermath of the 2003 SARS epidemic, they came back, though it may be different this time given the demonstrations' anti-China tone.
Tourism from the mainland, which hit a record of more than 5.5 million visitor arrivals from China in January, had plummeted to half that by end-August. Mainland visitors still account for almost 80 per cent of total arrivals in Hong Kong.
Economists say it's unlikely this recession will be just a mild dip, with the protests showing no signs of ending and the US and China still negotiating over their trade differences.