Source: MSN Money
Hong Kong is facing its first recession since the global financial crisis, with little prospect of an immediate recovery as the city confronts its most violent protests in decades.
From luxury hotels and major shopping malls to neighborhood stores and restaurants in tourist hubs like Central, Causeway Bay and Tsim Sha Tsui, businesses are closing early or seeing fewer customers. Even when things are open, stores and the airport are quiet, as tourists stay away.
The economy in Hong Kong contracted in the second quarter, almost certainly in the third quarter and the data are still deteriorating. The question is how deep and prolonged the pain will be. Once Asia’s manufacturing powerhouse before the rise of mainland China, Hong Kong’s freewheeling consumer and finance-led economy is highly vulnerable to a collapse in confidence that has been delivered by the turmoil.
The city’s government has struggled to make the case that it has the policy tools to arrest the slide while the unrest continues.
The effects of the U.S.-China trade war combined with a lack of
Many economists see growth for all of 2019 sliding well below 1% — JPMorgan Chase & Co.’s latest call is 0.3% — for the weakest reading since 2009.
The downturn has also taken its toll on Hong Kong’s equity market. The MSCI Hong Kong Index has slumped 18% from an April high, with real estate and consumer stocks leading declines in that time.
A variety of key economic indicators have rapidly turned south in the past few months:
- Retail sales by value plunged a record 23% in August from a year earlier as demand for luxury goods such as jewelry and watches plummeted.
- Tourism arrivals declined almost 40% in August from a year earlier to about 3.6 million visitors, the worst performance since the 2003 SARS epidemic, according to data from the Hong Kong Tourism Board.
- Exports are expected to shrink this year to the worst level in a decade, the Hong Kong Trade Development Council warned as it slashed its 2019 growth forecasts.
- Sentiment among small- and medium-sized businesses hit fresh lows in August.
- The IHS Markit September whole economy purchasing managers’ index reading ticked higher, but still signals contraction at 41.5.
Hong Kong has had severe economic challenges before. In the early 2000s the SARS epidemic shut down the city amid fears of contracting the deadly virus. Once the all-clear came, though, visitor arrivals and business confidence bounced back. The difference now is that there’s little expectation of a rapid resolution, as positions harden on either side of the barricades.
The lack of foot traffic also means
In response to the immediate downturn the government announced a $2.4 billion stimulus package in August including measures to benefit citizens and companies, and there may be more spending announced in Lam’s annual policy address Oct. 16. There is an opportunity to increase spending in areas such as welfare, health care services and facilities that could help to deal with longer-term issues, according to Tommy Wu, senior economist with Oxford Economics in Hong Kong.
Given the scale of the current political challenges, the August package already looks like small change, particularly in light of the government’s HK$1.2 trillion ($149.3 billion) in fiscal reserves, as of the end of March.
“A large, timely and targeted fiscal