Chart of the Week: Hong Kong economy suffers on the back of domestic unrest

The leaders of Hong Kong have faced sustained protests over the past four months. The unrest was initially sparked by a proposed bill that would have made it easier for people in Hong Kong to be extradited to the mainland, but has since morphed into something bigger. The local economy was already facing economic headwinds from Sino-US trade tensions, with both exports and imports down over the past year. The domestic political situation appears to have exacerbated that weakness. Hong Kong’s PMI was 41.5 in September (50 is the threshold that separates contraction from expansion), implying a large fall in output. And it is not just businesses that have been affected. Households have suffered from reduced levels of confidence, too. Visitor arrivals were down almost 40% year-on-year in August, helping to explain a 25% drop in retail sales volumes that month. The available evidence points to an outright decline in GDP in the third quarter. It is still early days, but with protests showing little sign of abating, a fourth quarter contraction cannot be ruled out either.