Few people would deny that these are extraordinary times for Hong Kong. Rarely have retailers in the city had such a cheerless summer. In June, total retail sales were down 6.7% year-on-year, marking the fifth consecutive month of decline (Figure 1). The value of sales of jewellery, watches and clocks, and valuable gifts declined by 17.1%, the steepest slide since August 2016.
Hong Kong has no shortage of challenges which are emerging almost on a daily basis, from the trade war and the possibility of a hard Brexit to the extradition bill demonstrations. Worse is that there is no end in sight to any of them.
The Federal Reserve cut the Fed Funds Target Rate by 25 basis points to 2-2.25%, the first reduction since 2008, at its July meeting. This “insurance cut” might have allowed President Trump more room to escalate the trade war with Mainland China. A day after the Fed’s interest rate move, he announced an additional 10% tariff on US$300 billion of Chinese goods, due to take effect on 1 September.
Amid softening global demand, the International Monetary Fund last month lowered its growth forecasts for the global economy modestly for this year and next by 0.1 percentage point, to 3.2% and 3.5% respectively.
More cautious consumer and business sentiments have taken a toll on the Hong Kong economy. In Q2, year-on-year real GDP growth remained sluggish at 0.6%. On a seasonally adjusted quarter-to-quarter basis, real GDP contracted by 0.3%. It is not a cheerful picture, and it is not going to get better if the social and geopolitical tensions in Hong Kong and beyond continue to escalate.
It is highly likely that the city’s economic growth for the whole year of 2019 will slow sharply from last year’s 3.0%. Nonetheless, if stakeholders join hands to settle their differences, this may enable us to minimize the damage to the local economy and allow us to ride out the storm.
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