Hong Kong sink­ing into re­ces­sion with no re­cov­ery in sight

The Star Malaysia - StarBiz - - Front Page -

HONG KONG: 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 neigh­bour­hood 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 city’s sub­way net­work, or MTR, was closed en­tirely for long stretches dur­ing the hol­i­day week­end from Oct 4 amid the vi­o­lent back­lash to Chief Ex­ec­u­tive Car­rie Lam’s at­tempt to quell months of protests by in­vok­ing a colo­nial-era emer­gency law.

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 free-wheel­ing 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.

“I do not ex­pect to see any strong mea­sures that can in­stan­ta­neously turn things around,” said Dong Chen, se­nior Asia econ­o­mist with Pictet Wealth Man­age­ment, one of a grow­ing cho­rus of ex­perts pre­dict­ing Hong Kong had a sec­ond straight quar­terly con­trac­tion in the three months through September.

“The best sce­nario is af­ter this po­lit­i­cal un­rest they can come up with longer-term plan­ning or mea­sures to solve struc­tural prob­lems.”

The ef­fects of the Us-china trade war com­bined with a lack of tourist spend­ing power also raises the prospect of a con­trac­tion for the full year, com­pared with 2018. The down­turn has been rapid, as de­clin­ing ex­ports and protests have erased any eco­nomic mo­men­tum from the start of 2019.

When Fi­nan­cial Sec­re­tary Paul Chan un­veiled his bud­get in Fe­bru­ary, he fore­cast an­nual growth of 2% to 3% – by Au­gust, he had slashed that fore­cast to zero to 1%.

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 jewellery 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.

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