While the official Q3 GDP data for Hong Kong will not be officially released until tomorrow (31 October), Financial Secretary Paul Chan has already said in his blog that the city’s economy continued to contract in the third quarter. This confirms that Hong Kong has technically entered a recession, which is defined as two consecutive quarterly contractions. In Q2, real GDP contracted by 0.4% on a quarter-on-quarter basis.
Domestically, the escalating social tensions have taken a heavy toll on tourism-related sectors. Visitor arrivals dropped 37% year-on-year in August and September combined, and subsequently by 50% in the first half of October. The overall hotel occupancy rate dropped from 92% in the beginning of the year to only 66% in August, a level not seen since 2009.
Hong Kong’s economy is also being hit by the U.S.-China trade war. Total exports of goods dropped 5.6% year-on-year in Q2, following the 3.7% decrease in Q1. Total exports of goods decreased by 7.3% in September year-on-year, after a 6.3% decline in August.
The double whammy of the trade war and domestic political tensions has dampened consumer sentiment, business investment and the overall Hong Kong economy. The International Monetary Fund (IMF) has slashed its 2019 growth forecast for Hong Kong from its previous estimate of 2.7% in July to just 0.3%.
Although the overall unemployment rate remained low at 2.9% in the three months to September, the rate for the retail, accommodation and food services sector rose from 3.5% in the beginning of the year to 4.9%, its highest level in more than two years.
The Financial Secretary did not rule out the possibility of a full year economic contraction as he said it would be “extremely difficult” to achieve the Government’s previous forecast of 0-1% annual economic growth for the year.
In its latest report on the global economic outlook, the IMF urged global leaders to “cooperatively de-escalate trade and geopolitical tensions” and said “there is no room for policy mistakes.” We only wish that warning could have come earlier.
Sign up for the latest news & offers.