Hong Kong’s economy entered a recession for the first time in a decade in the third quarter and the central bank cut interest rates, as domestic unrest took a heavy toll on tourism and domestic demand.
Gross domestic product shrank 3.2 percent sequentially after falling 0.5 percent in the second quarter, the advance estimate from the Census and Statistics Department, released on Thursday showed.
A technical recession is defined as two consecutive quarters of contraction.
Economic activity in the city has remained hurt by the ongoing anti-government protests that often turned violent. Rallies and mass demonstrations were held against the government’s proposed extradition bill.
Visitor arrivals decreased 34.2 percent year-on-year in September, data from the Hong Kong Tourism Board showed on Thursday. In the January to September period, visitor arrivals grew just 0.2 percent from a year ago.
The government had announced a slew of stimulus measures since August, to help the economy to recover.
In a speech ahead of the release of the third quarter GDP data, Chief Executive Carrie Lam said “…frankly there is no room for optimism.” Earlier this month, Lam had warned of a recession.
In the first half of October, visitor arrivals plunged about 50 percent, she pointed out.
In a blog, Financial Secretary Paul Chan said it is extremely difficult to achieve the forecast of 0 to 1 percent economic growth this year.
On a yearly basis, GDP contracted 2.9 percent in real terms, marking the first annual fall for an individual quarter since the Great Recession of 2009.
The breakdown of GDP showed that private spending declined 3.5 percent, while government spending grew 5.3 percent. At the same time, gross domestic fixed capital formation plunged 16.3 percent annually.
Exports of goods decreased 7 percent and that of services slid 13.7 percent. Imports of goods declined 11.1 percent and import of services were down 3.8 percent.
A government spokesman said the situation showed an abrupt deterioration recently, due to the severe impacts of the local social incidents.
Looking ahead, the spokesman said with global economic growth expected to remain soft in the near term, Hong Kong’s exports are unlikely to show any visible improvement.
In the first three quarters as a whole, the economy contracted by 0.7 percent over a year earlier. Economists expect the economy to log a contraction for the whole year.
The spokesman said the Hong Kong economy will still face notable downward pressures in the rest of the year and it is very likely to record a negative growth for 2019 as a whole.
Julian Evans-Pritchard at Capital Economics, said barring a further escalation in the protests, the pace of contraction should at least ease somewhat. And monetary and fiscal easing, along with a relaxation of property regulations will offer some support to demand, the economist added.
The Hong Kong Monetary Authority on Thursday lowered its Base Rate by 25 basis points to 2 percent according to a pre-set formula. The decrease in the rate follows the 25-basis point downward shift in the target range for the US federal funds rate on October 30.
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