The Hong Kong economy’s first recession in 10 years deepened in the fourth quarter of last year weighed down by often violent anti-government protests and the protracted trade war between the United States and China, advanced estimates showed on Monday.
The economy shrank by a seasonally adjusted 0.4 percent between October and December from the previous quarter, versus a revised 3 percent contraction from July to September.
On an annual basis, Hong Kong’s economy shrank by 2.9 percent in the fourth quarter, compared with a revised 2.8 percent contraction in the third quarter.
For the whole of 2019, real gross domestic product (GDP) – the sum of all finished goods and services produced in a territory and adjusted for inflation – contracted by 1.2 percent, the first annual decline since 2009.
“Local social incidents with violence during the quarter took a further heavy toll on economic sentiment as well as consumption- and tourism-related activities,” a government spokesperson said in a statement.
Months of unrest in Hong Kong last year plunged the financial and trading hub into its worst crisis since it reverted from British to Chinese rule in 1997.
Despite a narrower year-on-year decline in Hong Kong’s total exports of goods in the fourth quarter, exports of services plunged by 25 percent due to a severe setback in inbound tourism, the estimates showed.
Analysts predict an even worse first quarter in 2020, as measures to restrict cross-border mobility to fight the spread of a new coronavirus, which originated in mainland China, deal a further blow to tourism, retail and other business.
Given the developing nature of the coronavirus outbreak in mainland China and elsewhere, forecasting the effect on Hong Kong is especially difficult. But combining that with long-standing issues such as the expensive property market produces one of the more difficult outlooks for Hong Kong since the 1997 handover.
“This is really the last nail in the coffin of the Hong Kong economy,” Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA, told Bloomberg about the virus’s impact before the data was released. “This time around even the financial sector may be affected, and I doubt protests will calm down.”
Drawing on experience from the 2003 Severe Acute Respiratory Syndrome (SARS) epidemic in the city, Aries Wong, lecturer at Hong Kong Baptist University’s School of Business, estimates visitor arrivals from mainland China could drop by an additional 10 to 20 percentage points, and annual economic growth could be cut by half a percentage point if the outbreak subsides by July – increasing to 1 percentage point if it continues for the whole year.
“Surely the virus is going to add a bit more pressure on tourism and retail,” Wong told Bloomberg.