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Hong Kong recession won’t spread

Lachlan Maddock
— 1 minute read

Hong Kong could sink into a devastating recession but its impacts will be confined to the city-state, according to an analyst from Moody’s.

A combination of protests, slowing global growth and the US-China trade war have pushed Hong Kong’s economy over the edge, with the city-state likely to suffer a technical recession in Q3 and feel the sting of civil unrest for years to come. 

In August, Harvard University economist Carmen Reinhart warned that a recession in Hong Kong could be a “tipping point” that could trigger a global slowdown or recession. 

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But despite being a global financial hub, a recession in Hong Kong won’t impact the rest of the world. 

“The problems in Hong Kong are a symptom of, rather than a cause for, the downturn in foreign trade,” Moody’s analyst Xiao Chun Xu told Investor Daily. 

“As long as its financial system is functioning, any downturn in Hong Kong should be contained locally.”

The ongoing protests have the potential to cause long-term reputational harm to Hong Kong, with an escalation in violence or potential military intervention sure to drive away businesses and investors. 

“On top of the issues surrounding the escalating trade war, the protests have had an increasingly dramatic effect on Hong Kong’s tourism and retail sector,” Mr Xu said.

Many mainland Chinese are already taking holidays elsewhere to avoid the unrest and as part of an ideological stand on the issue of Hong Kong’s independence from Beijing. 

While visitor numbers have bounced back after sharp declines before – for example, following the SARS outbreak of 2003-2004 – it remains unclear whether tourists will be able to put aside politics once the unrest is over.

Mr Xu also pinned some of the problems in Hong Kong on a confluence of other regional factors.

“Elsewhere in the region exports and domestic economic growth have been disappointing in South Korea, Japan and Singapore since the second half of last year,” he said,

“This strong co-movement across Asia is consistent with the notion that production processes are interlinked and that the US-China trade war impact is flowing through to the entire region.”

 

Hong Kong recession won’t spread
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