Hong Kong’s GDP Has Been Dragged Down by Political Unrest, Trade War
Hong Kong suffered a day of tempestuous weather, grim economic news and signs that the city’s political crisis is deepening.
(Bloomberg) --
Hong Kong suffered a day of tempestuous weather, grim economic news and signs that the city’s political crisis is deepening.
Gross domestic product contracted 0.3% from the previous quarter, while growth on a year-ago basis remained at 0.6%, according to data released on Wednesday. Both results were well below the estimates of economists surveyed by Bloomberg.
Hong Kong’s trade-dependent economy was facing a full-year deceleration even before protests over the government’s extradition bill began disrupting business and tourism in June. The data release came after the city’s financial markets shut early due to a typhoon, and amid signs that the government is taking a harsher line in punishing protesters.
“The trade war is hurting Hong Kong,” said Iris Pang, an economist with ING Bank NV in Hong Kong. “At the same time, into the second half of 2019, we will have protests also damaging the Hong Kong economy through consumption and the job market. It means that we are doubly hit.”
On Tuesday, embattled Chief Executive Carrie Lam addressed international and local chambers of commerce. She said that the territory’s economic momentum has weakened in recent months on the U.S.-China trade war and other “uncertainties,” according to a statement, while pledging to “spare no efforts” to deal with anti-government protests that risk harming the city’s growth.
There is “no room for optimism for the second quarter and the entire year,” she said.
“Mrs. Lam also said that the disputes in society in recent months are not conducive to Hong Kong’s continued development and that she would spare no efforts to deal with them,” according to the statement from the city’s government that reported her comments. “She pointed out that everyone should continue to have confidence in the city and she firmly believes that with the concerted efforts of various sectors, Hong Kong would find opportunities amid difficulties.”
Figures on Thursday may indicate retail sales dropped year-on-year for a fifth month in June, with demonstrations and the subsequent police crackdown deterring shopping and tourism.
What Bloomberg’s Economists Say...
Growth stalled at 1Q’s pace, the slowest since the global financial crisis, and in quarter-on-quarter terms, GDP shrank. The small, open economy is clearly suffering from the U.S.-China trade war. Investment fell the most since 2009, pointing to widening stress. Prolonged protests, if they continue to escalate, could be an additional downside risk.
--Qian Wan, economist. See the full HONG KONG REACT
- For more insight from Bloomberg Economics, click here
International companies are also feeling increasingly pessimistic about the city’s prospects, according to a survey of AmCham Hong Kong members.
“AmCham urges the government to stem any further damage and show clear leadership in meeting the expectations of Hong Kong people and in restoring the city’s international reputation for effective governance under the ‘one country, two systems’ framework,” Tara Joseph, the president of the association of U.S. companies in the city, said in a press release.
Storm Shuts Markets
A tropical storm shut Hong Kong’s financial markets for the first time in almost two years, adding extra drama to a city that’s been wracked by protests for weeks.
The Hong Kong Observatory raised the storm signal to 8 at 1:40 p.m. local time Wednesday, the third highest level on its scale. That prompted the city’s stock exchange to suspend trading 15 minutes later, as required by its rules. The Hang Seng Index, which normally closes after 4 p.m., ended the session 1.3% lower.
Signs are emerging that the ongoing unrest is damaging economic confidence, tourism and retail sales. The Hong Kong Retail Management Association said this month that “most members” reported a single-to-double-digit drop in average sales revenue between June and the first week of July, when multiple demonstrations converging on major office and retail districts took place.
Colonial Charge
The “industry is worried that these events will damage Hong Kong’s international image as a safe city, a culinary capital, and a shopping heaven,” the association said in a statement.
Small businesses in the city have also become much more pessimistic, with a sentiment index of small and medium companies dropping to the lowest in the seven years the survey has been conducted. The attitude of companies toward investment, sales, and profits all declined, as did all nine industry sub-indices, according to the results of the survey by Standard Chartered Plc.
On Tuesday, dozens of protesters were charged with a colonial-era rioting charge that carries a 10-year prison sentence, drawing outrage from pro-democracy groups.
“Young people will not be frightened by this thing,” opposition lawmaker Kwok Ka-ki said Wednesday. “Using this kind of unreasonable prosecution and police force will only make Hong Kong worse.”
--With assistance from Scott Lanman.
To contact the reporters on this story: James Mayger in Beijing at jmayger@bloomberg.net;Eric Lam in Hong Kong at elam87@bloomberg.net
To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, ;Malcolm Scott at mscott23@bloomberg.net, James Mayger
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