Hong Kong’s economy grew at its slowest annual pace since the financial crisis in the second quarter, official data showed, as the Asian finance hub struggles amid simmering trade tensions and ongoing political turmoil. Worse could be yet to come.
Government figures released on Friday showed that GDP growth fell to 0.5 per cent in the second quarter year-on-year, worse than an earlier estimate of 0.6 per cent.
Some economists predict that Hong Kong is facing an imminent recession. Seasonally-adjusted GDP shrank by 0.4 per cent in the three months to June, compared to the first quarter. A technical recession is normally defined as two consecutive quarters of contraction.
“A cooling global and Chinese economy, the trade war and local political unrest are really the triple whammy that Hong Kong is facing right now,” said Gary Ng, an economist at Natixis.
Second-quarter GDP, which captures activity in the three months to June, comes too early to gauge the impact of the unrest, which began in June when millions took to the streets initially against a bill that would allow criminal suspects to be extradited to mainland China.
“So far, the most damaging factor to the Hong Kong economy is the trade war” leading to an exports downturn this year, said Iris Pang, greater China economist at ING. Other export-geared economies in the region, such as Singapore and South Korea, have similarly been caught in the trade war crossfire.
The effects of ugly political upheaval have started showing up in other data points. IHS Markit figures for July showed that private sector activity was its weakest since early 2009.
Carrie Lam, the territory’s leader, told reporters earlier this month that the economic harm unleashed by demonstrators was comparable to the devastating SARS epidemic of 2003. Analysts say that they expect protests to hit sectors including retail and tourism, and even Hong Kong’s red-hot residential property market, regularly crowned the world’s least affordable.
There are few signs of things cooling off. Speculation is mounting that Chinese armed forces could act to quell the unrest, after mass protests prompted Hong Kong’s airport to suspend flights for two days this week, with reports suggesting that soldiers are massing across the border in Shenzhen.
“In the extreme case of military intervention by the mainland, Hong Kong’s economy would face a deep contraction,” wrote economists at Capital Economics this week, who said such a scenario would spark capital flight and may even threaten the local currency’s longstanding peg to the US dollar.
Financial secretary Paul Chan on Thursday unveiled an economic support package of HK$19.1bn ($2.4bn), including tax cuts and boosts to social security which add up to 0.3 per cent of GDP. Still, the government has downgraded its 2019 growth forecast to between zero and 1 per cent, from 2 to 3 per cent.
“The fundamental problem is weakening business and consumer confidence,” said Natixis’s Mr Ng. “Clearing [political] uncertainties is more essential than giving out cash.”