The continued social movement in Hong Kong and the uncertain outlook for the Sino-U.S. Trade war make the market accustomed to the news that Hong Kong’s economy has weakened
However, the November Purchasing Managers Index (PMI) announced by investigating agency IHS Markit yesterday recorded the largest decline since SARS in April 2003, and predicted that Hong Kong’s GDP would shrink rapidly by more than 5% in the fourth quarter, still bringing investment markets Shocked for a while.
Fixed investment fell 16%, worst in 20 years
Hong Kong’s GDP is expected to drop by 5%. Is it too unimaginable? Maybe everyone hasn’t paid attention, but the latest forecast made by the Hong Kong Government is even worse. The Financial Secretary, Chen Maobo, said in the Legislative Council on Monday that the government has cut its GDP forecast for this year to a 1.3% year-on-year decline. Based on the total GDP announced in the first three quarters, which has fallen by almost 0.7% year-on-year, the GDP in the fourth quarter will have to drop by 5.9% to get the result of a 1.3% decline in GDP for the whole year.
As early as last month after the Hong Kong government announced that the third quarter GDP fell by 2.9% year-on-year, major foreign banks have lowered their forecasts for Hong Kong’s GDP, with JP Morgan Chase the weakest, forecasting GDP to fall by 1.5% this year. According to the forecast of Massage Pass, Hong Kong’s GDP in the fourth quarter dropped by more than 9% year-on-year.
In the third quarter GDP data, the most worrying thing is to see the trend of the sharp decline in fixed investment, and the recent private PMI data in November further cited this trend. “Fixed capital formation” fell by more than 16% year-on-year in the third quarter of this year, the largest decline since the second quarter of 1999.
Different from that year, after the Asian financial turmoil in 1998, asset prices in Hong Kong’s property market plummeted. Part of the decline in fixed capital investment was reflected in the contraction of “building and construction” expenditures in the public and private sectors. It mainly reflects that the investment in the private sector “machinery, equipment and intellectual property rights” fell by more than 26% during the period, which is also an amazing decline not seen in 20 years.
In other words, private companies are reluctant to make new investments in Hong Kong or even shrink their operations. In the context of the Sino-U.S. Trade war and uncertainties, the global trade volume is declining, and the volume of re-exports through Hong Kong has continued to decline. Commercial institutions are cautious about new investment, which was already expected. Local social movements have shown no signs of easing for several months, and it is understandable that corporate decision makers have called off new investment projects.
The United States recently passed the Hong Kong Bill of Rights and Democracy (hereinafter referred to as the Human Rights Act), which requires the US government to submit an annual report to examine whether Hong Kong meets the conditions for continuing to enjoy special treatment such as the independent customs area under the Hong Kong Policy Act. For Chinese and foreign business organizations operating in Hong Kong, human rights law may cast significant uncertainties on their business prospects. There is reason to believe that even if the social movement in Hong Kong becomes slightly calmer in the future, private sector capital investment may not stop falling and stabilize.
The last two recession cycles lasted 4 to 5 seasons
The level of capital investment by commercial institutions is a determinant of the job market and private consumption. Private sector fixed investment has not recovered for a day, and it is difficult for Hong Kong to escape from the stagnation of the economic downturn. As for how long the worst-case recession will last? Historical data may provide a little reference.
The Hong Kong economy has experienced two consecutive periods of recession, which were the consecutive four consecutive quarterly declines in GDP from 2008 to 2009 and the five consecutive quarterly declines between 1998 and 1999. In contrast, during the SARS period in 2003, due to the low base effect of the long-term sluggishness of the former economy, GDP only fell for a quarter and was stable.
Judging from the overall decline in private consumption, fixed investment, import and export of goods, and service input and output in the third quarter of Hong Kong’s GDP, the trend of economic contraction is believed to be more like the foundation of Hong Kong’s economy in 1998 and 1999 After the storm shook. Even if Hong Kong’s economy plunges by more than 5% in the fourth quarter as expected, it is difficult to see the dawn of recession in the short term.