Hong Kong is in the middle of a recession, according to renowned China expert Andy Xie, as new data shows the economy is starting to feel the pain of ongoing protests.
“Retail sales are plummeting, the property market has very few transactions and the little action in the stock market has fizzled out. I don’t see where the growth comes from,” Xie told CNBC this week.
Xie, the former head of the Morgan Stanley’s Asia-Pacific economics team, is known as one of the few economists who correctly predicted past economic bubbles, including the 1997 Asian Financial Crisis and the U.S. subprime crash.
His comments follow Hong Kong Financial Secretary John Tsang Chun-wah’s warning this week that 2014 economic growth could miss revised government forecasts of 2.2 percent. The economy grew 2.7 percent in the July-September quarter, beating estimates for a 1.8 percent rise.
Retail sales weaken
Data this week showed retail sales slowed sharply in October, rising 1.4 percent on year compared with a 4.8 percent increase in September as the city’s pro-democracy movement enters its third month.
Luxury items such as jewelry and watches posted the biggest declines in October’s report, down 11.6 percent on year, with crowds of protesters blocking off major commercial streets and hurting sales of retailers located in those districts.
, one of the world’s largest listed jewelers, is one of those retailers and recently reported a 24 percent annual decline in October same-store sales.
“The performance of [retail] items closely related to local consumption was lackluster, conceivably reflecting the adverse impacts of the Occupy Movement on consumer sentiment,” said a government spokesman in a statement.
“It would be fair to expect that the overall fragile political mood and daily life inconveniences will continue to dampen the amount of shopping by locals in the near term, even as we head into the festive season and locals get used to the traffic blockages,” agreed Citi economists in a note.
Citi sees slower consumption as a key theme going well into 2015 as Beijing’s anti-corruption exercise also reduces luxury spending per Chinese tourist, hurting profits, shop rentals and staff hiring.
“Protests are going to reoccur again in the future and the government is not competent enough to deal with it. I don’t see how Hong Kong can be stable in this environment,” Xie said.