Forbes Shanghai bureau chief Russell Flannery shares his perspective on what’s happening in China and how it’s impacting the Asian markets.
Hong Kong’s economy slid deeper into recession in the fourth quarter as pro-democracy riots continued to take their toll and growth could be hit even harder as the outbreak of the coronavirus spreads.
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The semi-autonomous Chinese territory’s economy contracted 0.4 percent quarter-over-quarter in the three months to December, following previous quarterly declines of 3.3 percent and 0.4 percent. A recession occurs when there are at least two consecutive quarters of economic contraction.
On an annual basis, gross domestic product contracted by 1.2 percent for 2019, slightly better than the 1.4 percent decline that was expected.
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“Hong Kong’s economy continued to contract last quarter and the coronavirus outbreak will probably keep the city in recession for a while longer,” wrote Julian Evans-Pritchard, a Singapore-based senior China economist for the research firm Capital Economics.
Last week, Hong Kong closed its borders to China, which accounts for 76 percent of tourism, in an effort to prevent the coronavirus, which has sickened more than 17,000 and killed 362, from spreading. So far 12 people in Hong Kong have contracted the virus.
Total visitors to Hong Kong plunged by 51.5 percent year-over-year in December, according to the Hong Kong Tourism Board, as Chinese nationals stayed away amid the pro-democracy protests. Visitors from the mainland were down by 53.2 percent from a year ago.
A team of UBS economists led by Tao Wang told clients on Monday that outbound travel from the mainland to Hong Kong could “decline by 80-90 percent in Q1 and not recover quickly.”
Although the coronavirus appears to be more contained than the 2003 SARS outbreak, Evans-Pritchard believes Hong Kong’s economy will suffer as a result of its reliance on Chinese tourism.
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“We think this will shave off around 2-percent from q/q seasonally adjusted GDP growth in Q1,” he wrote. “As a result, we have cut our forecast for Q1 GDP growth from +1.8 percent q/q to -0.5 percent and 2020 GDP growth forecast from 0.0 percent to -1.5 percent.”
