Increasingly violent demonstrations have disrupted the Chinese-ruled city for nearly six months, battering its retail and tourism sector and plunging its economy into recession for the first time in 10 years.
The seasonally adjusted headline Hong Kong Purchasing Manager’s Index (PMI) fell to 38.5 in November, down from 39.3 in October and signalling the steepest private sector downturn since April 2003.
A survey reading above 50 indicates expansion, while a figure below 50 denotes contraction on a monthly basis.
“Escalating political unrest saw business activity shrinking at the steepest rate since the survey started in July 1998,” said Bernard Aw, principal economist at IHS Markit.
“The average PMI reading for October and November combined showed the economy on track to see gross domestic product (GDP) fall by over 5 percent in the fourth quarter unless December brings a dramatic recovery.”
Demand from mainland China shrank for a nineteenth straight month in November, although the pace of contraction eased from October.
Companies also continued to scale back their purchases of raw materials and other inputs, with 38 percent of survey respondents predicting weaker activity in the year ahead, citing political unrest and the protracted trade war between the United States and China.
Hong Kong’s retail sales fell the most on record in October, sinking 24.3 percent from a year earlier, government data showed on Monday. Tourist arrivals plunged nearly 44 percent.
Protesters are angry by what they see as Beijing’s tightening grip over the city’s cherished freedoms promised under a “one country, two systems” formula when Britain returned it to Chinese rule in 1997.
China denies interfering and says it is committed to the “one country, two systems” formula put in place at that time and has blamed foreign forces for fomenting unrest.
The crisis has heightened tensions between Washington and Beijing, complicating the two sides’ efforts to negotiate a trade deal.
Economists at ING said Hong Kong is sliding into a hard-landing recession.
“No one is expecting a sudden end to the violent situation. We’re forecasting GDP growth at (negative) 7 percent for the fourth quarter, and full-year growth will be (negative) 2.25 percent in 2019, which is close in scale to 2009’s recession of (negative) 2.5 percent,” they said in a note on Monday.
The economy could shrink 5.8 percent in 2020, assuming trade war uncertainty and violent protests drag on through the year, ING said.