The economic situation of Hong Kong is in a worse condition than was expected because of months of violent pro democracy protests in the city which has paralyzed life, forced closure of shops and businesses and public transportation and scared away tourists.
According to official data released Thursday, the Hong Kong economy plunged into recession in the third quarter. The economy reported shrinkage of 3.2 per cent in the third quarter in comparison to the figures in the previous quarter. The economy also reported a 0.5 per cent slowdown in the second quarter. But the third quarter performance was much worse and way below what analysts and experts had been expecting.
Analysts also expect that the current recession in Hong Kong will extend further into the new year because there is apparently no resolution of the political protests in sight. This is the first technical recession of the city in more than a decade. The third quarter shrinkage in the economy was 2.9 per cent year on year.
“Frankly, there is no room for optimism,” embattled Hong Kong Chief Executive Carrie Lam said at a business event on Thursday, ahead of the preliminary growth figures. Hong Kong will release revised GDP figures next month.
The US-China trade war and China’s slowing growth was already hurting Hong Kong which is one of the major trading hubs of Asia.
The city is now being pushed into the threshold of an economic crisis because of five months of mass demonstrations.
Despite a slowing global economy and US-China trade tensions, the economic growth of Hong Kong had been on an upward trend, said a government spokesperson on Thursday. But “the situation showed an abrupt deterioration recently due to the severe impacts of the local social incidents,” the spokesperson said.
“Much of the pressure is now coming from the political unrest. The trade war itself would cause Hong Kong’s GDP growth to slow but not a contraction, while the political unrest could,” said Tommy Wu, a Hong Kong-based economist with Oxford Economics.
For the entire year of 2019, the growth of Hong Kong is now expected to miss analysts expectations of between 0 and 1 per cent and the trend is also expected to continue into next year.
Iris Pang, economist for Greater China at ING said that Hong Kong’s GDP “is quite likely to fall into negative growth in 2019 and also 2020 […] I can’t see how the protests could end.”
Wu expects Hong Kong’s economy to contract 0.1% in 2019 and “only to grow at a meager 0.6% in 2020.”
“The downside risk to the forecast is significant. If the political unrest prolongs beyond this year, I would expect next year’s GDP to contract as well,” he said.
The city’s tourism has been the hardest hit because of the mass demonstrations with a 37 per cent year on year plunge in tourist number for the third quarter. A 28 per cent year on year drop in hotel occupancy was also reported for the third quarter as hotels of the city are currently only two-thirds full on the average.
(Adapted form CNN.com)