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Hong Kong protests: could a financial crisis be the jolt that brings the unrest to a halt?
- While Hong Kong’s economy fell into a worse than expected recession last quarter, financial markets have remained resilient
- A run on a major bank or a serious challenge to the currency peg might push Beijing, the Hong Kong government, protesters and ordinary Hongkongers to seek a resolution
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It was the most widely anticipated piece of economic data. Yet, when it was finally published last week, even analysts were taken aback.
The news that Hong Kong’s economy fell into recession last quarter – the first contraction in output over two consecutive quarters in a decade – came as no surprise. What was not foreseen was the scale of the decline, with the city’s gross domestic product shrinking by a whopping 3.2 per cent quarter on quarter, far exceeding the 0.6 per cent fall forecast by analysts in a Bloomberg survey.
The figures, which are preliminary, were resoundingly bleak. In annualised terms, private consumption contracted 3.5 per cent, while investment plummeted 16.3 per cent. Exports also continued to shrink as the fallout from the US trade war and the slowdown in China’s economy took their toll.
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However, as the government stressed in its press release, it was only after the mass protests erupted in early June that Hong Kong’s economy registered an “abrupt deterioration”. Make no mistake, the damage was mostly self-inflicted.
Still, some sense of perspective is in order. To claim, as one economist did in an interview with Bloomberg, that the downturn is “obviously comparable to the global financial crisis” is deeply misleading.
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