Unrest Could Push HK Into Recession

Unrest Could Push HK Into RecessionUnrest Could Push HK Into Recession

Tension following pro-democracy protests in Hong Kong was expected to deal a blow to the country’s retail sector, with fears growing that the city could slip into recession.

The political turmoil comes ahead of China’s weeklong National Day holiday, which usually brings Hong Kong a flood of mainland tourists eager to shop. As a result, October usually accounts for Hong Kong’s second-biggest retail sales period, after December.

“The chance of Hong Kong running into a technical recession in the third quarter is pretty high,” said Raymond Yeung, a senior economist at ANZ, calling the turmoil “salt to the wound” of the city’s economy.

“If you have a strong retail sector that continues to be vibrant, that would provide some offset to the slowdown in cross-border trade,” but the unrest raises fears that retail sales will be affected during the vital shopping period, he said.

While business in much of Hong Kong returned to normal during the day Monday, banks shut branches, suspended some services and activated contingency plans to deal with disruptions as pro-democracy protests continued to grip several areas. Crowds swelled to even larger numbers as night fell on the city. Although Hong Kong’s tycoons have largely been opposed to Occupy Central, one finance group is openly supporting civil disobedience.

Hong Kong’s reputation as a hub for global capital entering Asia could be dented if the protests worsen, said Philippe Espinasse, a former investment banker in the city who now writes on banking and finance.

“Investors very much like visibility and certainty and could therefore become concerned about the stability of the market if the situation deteriorates significantly,” Espinasse said.

The Hong Kong Monetary Authority, the city’s de facto central bank, said it has activated its contingency plan and is ready to inject liquidity into the banking system. The HKMA said it expects the city’s money markets to operate normally.