Riot police stand against demonstrators during a protest in the Wan Chai district of Hong Kong, … [+] China, on January 1, 2020. (Photo by Yat Yeung/NurPhoto via Getty Images) NurPhoto via Getty Images
Hong Kong started off the Western New Year in protest mode. Tens of thousands took to the streets again this week to call for universal suffrage, and freedom for protesters currently facing jail time. But it ended the year with a key driver of its economy — the consumer — in near total retreat.
If protests continue, 2020 is shaping up to be a disaster for the Hong Kong economy.
Hong Kong’s retail sector overall saw sales figures fall 23.6% in November compared to a year ago. It was the second largest drop on record, the South China Morning Post reported on Friday based on data from the Census and Statistics Department (C&SD) of Hong Kong. The number follows October’s retrenchment of 24.4%. C&SD said that further civil unrest does not bode well for the sector this year.
Luxury goods in the fashion segment primarily saw sales sliding 43.5% in November. Luxury beauty products, of which Hong Kong is a top market for international brands in Asia, fell by 33.4%.
General department store sales were off by 30% annualized.
HSBC to close ATMs in certain districts hit by protests. SOPA Images/LightRocket via Getty Images
Annie Tse Yau On-yee, chairwoman of the 9,000-member Hong Kong Retail Management Association, told the Post that she expected more store closings in the city in 2020.
Financial Secretary Paul Chan Mo-po predicted this week that Hong Kong’s economy will shrink by 1.3% in 2020 due to both protests and the trade war.
Hong Kong slipped into a recession in the second half of 2019. its GDP contracted 3.2% in the third quarter on a quarterly basis and 2.9% annualized, the biggest contraction in a decade.
Fourth quarter numbers have not yet been released, but judging by November’s retail slump, positive numbers will depend on the four key sectors of the economy, namely financial services, tourism, and export trading.
At least one bank is issuing a warning that protests are hurting business.
On Friday, HSBC — the city’s largest bank — said it would shut down ATM service on weekend evenings and during public holidays in areas where protestors are most active. HSBC said the closings would impact 19 ATM locations at night “until further notice.”
Tourism hasn’t been this bad since disease outbreaks of 15 years ago.
Tourist arrivals in Hong Kong fell 56% year over year in November for a total of 2.65 million, not far off the 2003 levels that suffered from a breakout in severe acute respiratory disease, known as SARS, back in 2003.
An empty Hong Kong Airlines desk seen at Hong Kong international airport on December 20, 2019. SOPA Images/LightRocket via Getty Images
Hong Kong’s four key industries accounted for roughly 57% of its GDP in 2018. Now that the biggest bank is shutting down ATMs and tourism is in trouble, investors will have to hope the trade variable remains favorable.
Also, China has not involved itself in the law enforcement activities on the ground in Hong Kong. At least not overtly. The majority of Hong Kongers are in favor of the pro-democracy movement, but are not calling for a clean break from China. This is good for Beijing.
The U.S. threat of sanctions to remove Hong Kong’s special trading relationship is damaging to China but is more damaging to Hong Kong. Considering the region is already in recession, removal of that status would be a brutal and decisive blow to the very people Washington wishes to protect.
Barring greater and undisguised Chinese involvement in policing the Hong Kong protests, Washington’s age-old trading status with Hong Kong should remain in place this year. Removing it would be a worse case scenario, sending the Hang Seng into bear market territory.
The iShares MSCI Hong Kong (EWH) exchange traded fund managed to eek out gains of 12.5% last year. Investors in mainland Chinese equities did better. The Deutsche XTrackers China CSI-300 (ASHR) rose nearly 40% in dollars, with the MSCI China Index up 28%.
OTTAWA – The Canadian economy was flat in August as high interest rates continued to weigh on consumers and businesses, while a preliminary estimate suggests it grew at an annualized rate of one per cent in the third quarter.
Statistics Canada’s gross domestic product report Thursday says growth in services-producing industries in August were offset by declines in goods-producing industries.
The manufacturing sector was the largest drag on the economy, followed by utilities, wholesale and trade and transportation and warehousing.
The report noted shutdowns at Canada’s two largest railways contributed to a decline in transportation and warehousing.
A preliminary estimate for September suggests real gross domestic product grew by 0.3 per cent.
Statistics Canada’s estimate for the third quarter is weaker than the Bank of Canada’s projection of 1.5 per cent annualized growth.
The latest economic figures suggest ongoing weakness in the Canadian economy, giving the central bank room to continue cutting interest rates.
But the size of that cut is still uncertain, with lots more data to come on inflation and the economy before the Bank of Canada’s next rate decision on Dec. 11.
“We don’t think this will ring any alarm bells for the (Bank of Canada) but it puts more emphasis on their fears around a weakening economy,” TD economist Marc Ercolao wrote.
The central bank has acknowledged repeatedly the economy is weak and that growth needs to pick back up.
Last week, the Bank of Canada delivered a half-percentage point interest rate cut in response to inflation returning to its two per cent target.
Governor Tiff Macklem wouldn’t say whether the central bank will follow up with another jumbo cut in December and instead said the central bank will take interest rate decisions one a time based on incoming economic data.
The central bank is expecting economic growth to rebound next year as rate cuts filter through the economy.
This report by The Canadian Press was first published Oct. 31, 2024
