Hong Kong falls into first recession in 10 years as protests, trade war weigh

Hong Kong falls into first recession in 10 years as protests, trade war weigh

Hong Kong city skyline victoria harbour - file photo
A general view of Hong Kong's Victoria Harbour as seen from Victoria Peak (Photo: Jeremy Long)

HONG KONG: Hong Kong slid into recession for the first time since the global financial crisis in the third quarter, advance estimates showed on Thursday (Oct 31), weighed down by increasingly violent protests and the protracted US-China trade war.

Five months of protests have battered the Chinese-ruled city's retail and tourism sector, and there is no sign of the demonstrations abating. Police tightened security on Thursday ahead of more potential clashes.

The economy shrank 3.2 per cent in July-September from the preceding period, contracting for a second straight quarter and meeting the technical definition of a recession, according to the preliminary government data.

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READ: Hong Kong shops shutter as months of protest darken economic gloom

From a year earlier, the economy contracted 2.9 per cent. The readings were the weakest for the Asian financial hub since 2008/2009.

The government also revised down second-quarter GDP data to 0.4 per cent year-on-year, from 0.6 per cent, and a contraction of 0.5 per cent quarter-on-quarter, versus 0.3 per cent previously.

"Domestic demand worsened significantly," the government said in a statement.

"As the weakening economic conditions dampened consumer sentiment and large-scale demonstrations cause severe disruptions to the retail, catering and other consumer-related sectors, private consumption expenditure recorded its first year-on-year decline in more than 10 years."

The government said that with no sign of protests abating, private consumption and investment sentiment would continue to be affected.

Some Hong Kong businesses have asked employees to take unpaid leave as tourists steer clear of sometimes violent running battles between protesters and police in key shopping areas and malls.

Capital Economics said in a research note that while GDP would probably continue to contract in the fourth quarter, the pace of contraction should ease somewhat barring a further escalation in the demonstrations.

"Any recovery will be constrained by weak business investment, however, as the city’s political crisis has done lasting damage to its reputation as a stable and autonomous financial hub," it said in a note to clients.

The protests and escalating violence have plunged the former British colony into its biggest political crisis in decades and unnerved many in the business and financial communities.

Protesters are angry at what they see as Beijing’s increasing interference in the Chinese-ruled city. China denies meddling and has accused foreign governments, including the United States and Britain, of stirring up trouble.

The city's leader Carrie Lam warned on Tuesday that full-year growth could contract. Retail sales and tourism have plummeted.

Almost all growth engines in the Asian financial hub stalled over the summer as shops shut to avoid clashes between riot police and protesters, while the Sino-US trade war intensified. Hong Kong is one of the world's most popular tourism destinations and a bustling container port.

Retail sales fell the most on record year-on-year in August, while tourist arrivals dropped the most since Severe Acute Respiratory Syndrome (SARS) struck Hong Kong in 2003.

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Last week, the government announced relief measures of HK$2 billion (US$255 million) to support the economy, particularly in its transport, tourism and retail industries, and more is expected. It has also urged landlords to cut rents for struggling businesses.

But there is no guarantee Beijing will come to Hong Kong's rescue as it has done during previous downturns, at times relaxing mainland visitor restrictions to boost tourism.

"There is no liquidity bail-out for Hong Kong, ever. This is it. It's not coming back," said Andy Xie, a Shanghai-based independent economist formerly at Morgan Stanley.

READ: Our coverage of the Hong Kong protests

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Source: Agencies/ga/nc

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