Standard Chartered recently came out with its analysis of the Hong Kong economy. The Gross Domestic Product (GDP) of the Asian economy dropped into a technical recession in the third quarter (Q3), which in turn helps the bank to anticipate the full-year contraction in 2019 and 2020.
Key quotes
“Hong Kong’s very weak advance Q3 GDP estimates confirmed a long-feared technical recession, but also shed light on the entrenched damage caused by the perfect storm – the escalating US-China trade war, China’s slowing economy and worsening local political clashes.”
“Headline growth came in at -2.9% y/y, materially undershooting consensus (-0.3%) and down from Q2’s revised +0.4%. Not only was this the first y/y contraction since the global financial crisis – the 3.2% q/q fall also almost matched the -3.4% q/q trough in Q1-2009.”
“Contribution of investment – a persistent drag on growth as external trade headwinds have intensified over the past year – worsened in Q3 (-3.5ppt by our estimate) as local political uncertainty further put off long-term business decisions.”
“The plunge in tourist arrivals was almost as damaging, judging by the -3.4ppt drag from net services exports.”
“This, together with the -2.3ppt contribution from private consumption expenditure (PCE), reflects disruption from protests and more generally weak consumer sentiment. Even the strong net exports performance was misleading, reflecting even weaker growth for imports than exports.”
“We lower our GDP forecasts, considering the much deeper hole Hong Kong now needs to dig out of, but also the unlikely quick dissipation of domestic and external headwinds. We now expect GDP to contract 1.5% and 0.3% (versus +0.5% and +1.5% prior) in 2019 and 2020, respectively.”
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