More than one reason why Hong Kong is slowing

August 30, 2019

HONG KONG - The reasons for Hong Kong's economic slowdown go beyond the protests as they also include the deteriorating relationship between China and the US and much more negative sentiment globally, says Nataxis in a report on recent activity.

Because of the China/US situation, Hong Kong's exports are doing very poorly, with a reduction of 9% YoY in June, Natixis says, adding that, in particular, Hong Kong's exports to the US and Japan experienced sharp declines.

Although imports have also seen a sharp deceleration, export performance has been poorer, leading to a widening of the trade deficit to widen to US$125 billion (18% of GDP) in the second quarter from US$118 billion (17% of GDP) in Q1.

"Against the backdrop, business confidence has deteriorated sharply as shown by the PMI, which moved further downward to 43.8, within contraction territory.

In the same vein, Hong Kong gross investment dropped by 12% in Q2 from a fall of 7% in Q1. "Given that Q2 only incorporates two weeks of the 11-weeks of

protests so far, investment is bound to perform even worse in Q3."

Beyond trade and investment, Natixis says, Hong Kong's retail sales have slumped across the board as inbound travellers from Mainland China have come down quickly and a number of countries have issued travel alert warnings.

"Because overseas consumers account for more than half of total consumption, we should expect very negative data for retail sales during Q3."

Natixis says the Hong Kong Government's US$19.1 billion plan to counteract the economic downturn is far too broad-based to target the main problems faced by Hong Kong.

Moving forward, the pressure weighing on Hong Kong's growth will become tougher, it says.

This is not only because of the US-China trade war and a more negative global economic outlook but because of disruptions in activities stemming from the protests as well as market worries over Hong Kong's reputation as a global offshore financial centre.

"Against this background, we expect bolder fiscal measures to be announced by the Government soon. We expect growth to hover around 0.5% for 2019." (ATI).