Protests Push Hong Kong Into Recession
WHY YOU SHOULD CARE
Ongoing demonstrations are one factor that have slowed the region's economy.
By Daniel Shane and Nicolle Liu
Hong Kong’s economy has fallen into recession after months of political turbulence in the Asian financial hub, with some economists predicting the downturn will worsen in 2020.
Economic gloom comes against a backdrop of violent anti-government protests. The protests have seen millions of people take to the streets since June, hammering revenues in the tourism and retail industries and prompting a credit downgrade from two big rating agencies. Hong Kong, an international business and export center, is also being buffeted by the U.S.-China trade war and a slowing global economy.
Preliminary data released by the government on Thursday showed that:
Hong Kong’s economy shrank by 3.2 percent in the three months to September, a contraction more than 5 times what was predicted.
The figures come after the economy shrank 0.5 percent in the second quarter of this year, sending the territory into a recession for the first time since the global financial crisis.
“What’s happening in Hong Kong now is unprecedented,” Carrie Lam, the city’s leader, told business leaders on Thursday. It is an “inevitability the economy will be hard hit.”
Iris Pang, an economist at ING, an investment bank, forecast that the economy would shrink in all four quarters next year.
The demonstrations in Hong Kong began in opposition to a now withdrawn bill that could have seen criminal suspects extradited to mainland China; they have since evolved into a broader challenge of Beijing’s rule over the former British colony.
The Hong Kong government has begun rolling out measures to stimulate the economy. These include tax cuts and boosts to social security, as well as relaxing mortgage rules for first-time buyers. But the administration, which holds a war chest of $140 billion in fiscal reserves, has refrained from large-scale stimulus.
The Hong Kong Monetary Authority, the city’s de facto central bank, has followed the U.S. Federal Reserve in lowering its benchmark interest rate. HSBC and Standard Chartered, both big banking presences in the city, have also lowered lending rates.
But “interest rates don’t matter for this economy anymore,” said Pang. “When there’s violence in the streets, people don’t want to go out shopping or go out for dinner.”
OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2020.