Hong Kong confirms it's in first recession in a decade amid chaos

Economy shrinks 3.2% in Q3, dragged down by protests and trade war

In a photo taken on Sept 9, 2019, residential buildings stand at dusk in the Tin Shui Wai district of Hong Kong.
In a photo taken on Sept 9, 2019, residential buildings stand at dusk in the Tin Shui Wai district of Hong Kong.PHOTO: BLOOMBERG

HONG KONG • Hong Kong sank into recession for the first time in a decade in the third quarter, government data has confirmed, weighed down by increasingly violent anti-government protests and the escalating United States-China trade war.

The economy shrank by 3.2 per cent in the July to September period from the previous quarter, on a seasonally adjusted basis, revised government data showed yesterday, 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 that the financial and trading centre potentially faces a longer and deeper slump than during the global financial crisis of 2008 to 2009 and the Sars epidemic in 2003.

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

It revised down its forecast for full-year growth to a contraction of 1.3 per cent versus an earlier estimate of zero to 1 per cent growth.

That would mark the first annual decline since 2009.

"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 employment," the government 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.

Tourists are cancelling 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 per cent from a year earlier - while September's plunged 18.3 per cent.

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 (S$8.2 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, and as a testing ground and springboard for their global ambitions.

Business activity in the private sector fell to its weakest in 21 years last month, according to IHS Markit, while demand from mainland China declined at the sharpest pace in the survey's history, since it was started 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 dollar, the packages have been relatively small.

REUTERS

 
A version of this article appeared in the print edition of The Straits Times on November 16, 2019, with the headline 'HK confirms it's in first recession in a decade amid chaos'. Subscribe