Hong Kong falls into first recession in 10 years

Asia Business World

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.

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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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.

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

Clashes between protesters hurling bricks and petrol bombs at police wielding tear gas and rubber bullets have become a weekly occurrence, hammering the city’s once-solid reputation for stability and safety.

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Hong Kong’s economy was already facing strong headwinds at the start of 2019 as it was hit by the US-China trade war, battering a city that is hugely reliant on the world’s two largest economies.

In the first quarter, the city grew a lacklustre 0.6 per cent.

Last week, Financial Secretary Paul Chan warned it was “very likely” the city would end the year in a full-blown recession.

READ: Our coverage of the Hong Kong protests

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