Hong Kong economy slows more than expected in Q2 amid trade war, protests (updated)

The Bank of East Asia

31/07/2019 11:56

* Mass protests seen adding to pressure from trade war
    * Hong Kong Q2 GDP rises 0.6% y/y (forecast 1.6%)
    * GDP shrinks 0.3% on quarterly basis 
    * Govt maintains 2-3% growth for 2019
    * Banks cuts 2019 growth forecasts

    By Twinnie Siu and Donny Kwok
    HONG KONG, July 31 (Reuters) - Hong Kong's economy grew less
than expected in the second quarter as the U.S.-China trade war
escalated, and pressure looks set to intensify as mass
anti-government protests rock the Asian financial centre.  
    The city's economy expanded 0.6% in April-June from a year
earlier, preliminary government data showed on Wednesday, much
less than an average forecast of 1.6% from five
economists. urn:newsml:reuters.com:*:nL4N24O18X
    On a quarterly basis, gross domestic product shrank 0.3% 
seasonally adjusted.
    Slowing global trade and weaker investment were the main
factors weighing on activity last quarter, the government said
in a statement along with the data.
    But a wave of protests that began in late April are
beginning to take their toll on tourism, retailers and hotels
after some protesters began clashing with police in recent weeks
in scenes splashed in news reports worldwide.
    "We expect growth in the city to remain weak," Capital
Economics said in a note to clients.
    "The drag from the U.S.-China trade war looks set to
intensify.... And with the protests turning more violent and
disruptive, there is a risk that they could have a bigger impact
on activity in the coming quarters."
    A government spokesman said in a statement that economic
sentiment had "deteriorated visibly" in the face of worries
about the global economy, with private spending growing only
modestly and investment falling further.
    
    NO QUICK FIXES
    No quick resolution is expected for either the U.S.-China
trade row or local political unrest.
    While the port of Hong Kong has lost some business to new
Chinese ports, and it is no longer has a large manufacturing
base, the territory remains a key middleman in global trade with
China.
    Hong Kong's total exports fell the most in nearly three and
a half years in June, with both global weakness and China's
economic slowdown playing a part.  urn:newsml:reuters.com:*:nL4N24Q2Q4
    Domestic pressures are quickly building as well, as clashes
between protesters and police in July threaten to scare away
tourists from one of the world's most vibrant shopping
destinations.  urn:newsml:reuters.com:*:nL4N24U237[nL4N24V2LB
    Various strikes are planned in coming weeks, while
disruptive civil disobedience actions are taking place almost
daily and look set to continue.
    Retailers say they expect sales for July and August to drop
by double-digits from a year earlier, while hoteliers are
bracing for a wave of cancellations.  urn:newsml:reuters.com:*:nL4N24I27I
    The government is still forecasting GDP growth of 2-3% this
year, versus 3% in 2018.
    But some banks have downgraded their forecasts, with
Standard Chartered  STAN.L  lowering its view to 1.4% from 2.2%,
and Bank of East Asia  0023.HK  trimming its forecast to 1.5%
from 2%.
    Rallies that started three months ago to protest an
extradition bill have plunged the former British colony into its
biggest political crisis since its return to Chinese rule in
1997.

 (Reporting by Twinnie Siu and Donny Kwok; Editing by Kim
Coghill)
 ((donny.kwok@thomsonreuters.com; +852 2843 6470; Reuters
Messaging: donny.kwok.reuters.com@reuters.net))