Hong Kong: Back-to-back yearly contraction likely – Standard Chartered Bank

Kelvin Lau – Senior Economist Greater China at Standard Chartered Bank – explained the rationale behind lowering Hong Kong’s GDP forecasts for 2019 and 2020.

Key Quotes:

“Hong Kong’s disappointing Q3-2019 GDP report prompted us to immediately lower our GDP forecasts for both this and next year, to -1.5% and -0.3%, respectively. We argued that in addition to confirming a technical recession, the broad-based nature of the Q3 GDP shock reflected the perfect storm of the escalating US-China trade war, China’s slowing economy and worsening local political clashes. We now see an even more drawn-out recovery for Hong Kong, and therefore lower our 2020 GDP growth forecast further to -1.5%, matching that of 2019. This implies a lower (sub-par) q/q growth trajectory throughout 2020, meaning no quick rebound to make up for the sizeable loss in total output in H2-2019, for the reasons below.”
 
“For one, disruptions from local protests to the retail and tourism sectors have further worsened in recent weeks, due to the cancelling of major events, and frequent closures of streets, malls and transport systems. There is a perceived increase in the use of force by the police alongside escalating protester violence of late. As our SME Index forewarned, the spillover to business confidence is also becoming clearer – for example, overall rents in Grade A offices fell 1.6% m/m in October, the biggest monthly decline since August 2009, according to JLL. More importantly, the unemployment rate, a lagging indicator, is finally starting to edge up, rising to 3.1% in October after 21 straight months below 3% (Figure 4). We expect it to reach 4.8% by end-2020, with the steepest part in H1-2020; this looks to exacerbate short-term challenges, especially considering that activity tends to slow around Lunar New Year. We, however, still expect fiscal spending to offer marginal relief, and the functioning of local markets to remain resilient.”