Hong Kong: Economy falls into technical recession as GDP slumps to one-decade low in Q3
October 31, 2019
The preliminary GDP reading showed the economy contracted at the sharpest pace since June 2009 in the third quarter, as Hong Kong faced the double whammy of mass protests battering domestic demand and the U.S.-China trade war hampering the external sector.
GDP tumbled 2.9% in year-on-year terms, following Q2’s revised 0.4% expansion (previously reported: +0.5% year-on-year). Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, the economy fell 3.2% in Q3, which was steeper than Q2’s 0.5% revised contraction (previously reported: -0.4% quarter-on-quarter). Contracting for two consecutive quarters, Hong Kong’s economy thus fell into a technical recession for the first time since the global financial crisis.
The fall in year-on-year GDP in the third quarter was mainly driven by a sharp decline in private consumption (Q3: -3.5% yoy; Q2: +1.3 yoy), while fixed investment contracted at a steeper pace of 16.3% year-on-year in Q3 (Q2: -10.8% yoy). In contrast, government consumption growth accelerated from 4.0% in Q2 to 5.3% in the third quarter.
On the external front, both exports and imports of goods and service contracted at a sharper pace in Q3 relative to Q2. The former was weighed on by muted demand from mainland China, while depressed business and consumer sentiment has suppressed import demand in recent months.
The government unveiled its latest round of economic relief measures worth approximately USD 250 million in late October, targeting the tourism and transportation industries, and is considering additional measures going forward. Nevertheless, domestic demand will likely remain under siege as protests and congestion keep consumers and tourists at bay, while the U.S.-China trade war also continues to rumble on.
Reflecting on the GDP reading, Iris Pang, an economist at ING, said:
“We expect Hong Kong GDP to be in negative quarterly growth for 4Q19 right through to the last quarter of 2020. GDP growth on a yearly basis is forecasted to be -5%YoY in 4Q19, and full-year growth will be -2.2% in 2019, which is close in scale to 2009's recession. Our GDP growth forecast for 2020 is -5.8%, assuming that the violent protests last the whole year.”
Author: Steven Burke, Economist