Hong Kong PMI August 2019

Hong Kong

Hong Kong: Protests damage economic environment, prompting government to unveil stimulus package

August 16, 2019

The economic environment has soured notably as large-scale pro-democracy protests, which were sparked by an extradition bill which has since been shelved, entered their third month in August. Escalating tensions have disrupted several sectors of the economy, including retail sales and transportation, pummeling activity, business confidence and financial markets. Looking ahead, the unrest will likely to continue to plague the outlook for investment until a peaceful resolution is found. Against the darkening backdrop, the Hong Kong government unveiled a nearly USD 2.5 billion stimulus package on 15 August, which should support the economy somewhat although it is unlikely to fully offset the damage.

The stimulus package includes tax cuts, higher subsidies for small- to medium-size businesses and other spending initiatives to help the economy weather the storm sparked by civil unrests, global trade tensions and slowing growth in China. Nevertheless, overall the stimulus boost will unlikely compensate for the turmoil caused by the political unrest and global headwinds to growth. The protests have led to halts in the transportation sector, even bringing Hong Kong International Airport—the world’s eighth busiest airport—to a standstill on 12–13 August, and will likely weigh on tourist arrivals and investment spending until the situation stabilizes.

While the protests have calmed somewhat in more recent days, the situation remains highly uncertain, and risks of further clashes between protestors and police, economic disruption and even a possible forceful intervention from China severely cloud the outlook. This uncertainty is set to hinder future growth, at a time when the U.S.-China trade war and slowing growth in the mainland already loom large over the economy.

FocusEconomics Consensus Forecast panelists see the economy growing 1.4% in 2019, which is down 0.6 percentage points from last month’s forecast. For 2020, the panel expects the economy to grow 2.1%.

Author: Angela Bouzanis, Lead Economist

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