UBS slashes HK GDP forecast as trade war, protests weigh on economy


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HONG KONG (SCMP): UBS dramatically cut its economic growth forecast for Hong Kong, citing uncertainty surrounding the US-China trade war and protests that have disrupted business in the city since June.

The Swiss bank slashed its forecast for gross domestic product (GDP) growth to 0.8 per cent from 2.4 per cent for this year.

The forecast cut came days after Hong Kong’s GDP growth in the second quarter came in at 0.6 per cent, unchanged from the first quarter and well below the consensus forecast of 1.5%.

“Both external and domestic uncertainties are likely to continue to drag private sector investment, ” UBS economists William Deng and Tao Wang said in a research note released on Friday.

“There is little clarity from the US-China trade negotiation so far into the third quarter, external economic growth did not show much sign of improvement, and domestic public protests are adding further complications.”

Trade war reckoning: Hong Kong-listed firms warn profits at risk

Early on Friday morning, US President Donald Trump said he would add a 10% tariff on US$300bil of goods made in China in September, meaning nearly all imports from China are subject to levies as the trade war between the world’s two biggest economies escalates further.

The increased tension is particularly troubling for Hong Kong’s economy, which is highly dependent on trade, particularly the transshipment of goods from China.

Confidence among small- and medium-sized business owners in Hong Kong fell to its lowest level on record in the third quarter, according to the latest Standard Chartered Hong Kong SME Leading Business Index released last week. The survey began in 2015.

More than 150 Hong Kong-listed companies have warned they expected a decline in profits in the first half of the year, with many citing worsening macroeconomic conditions, including the trade war and protests in Hong Kong over a controversial extradition bill proposed by the Hong Kong government.

The extradition bill would have made it easier to send fugitives from Hong Kong to mainland China for trial. The bill has been dropped, but it has sparked weeks of protests that have led to violent clashes between police and protesters, as well as calls for Hong Kong chief executive Carrie Lam Cheng Yuet-ngor to step down.

Standard Chartered CEO Bill Winters said on Thursday that the protests had a limited effect on its business so far, but it was monitoring the situation closely.

“There’s an element of heaviness in the market, which is inevitable given the magnitude of what is happening [in Hong Kong], ” Winters said.

Standard Chartered cuts Hong Kong’s GDP outlook as trade war bites

Several banks have reduced their outlook for Hong Kong’s growth this year including Standard Chartered and Morgan Stanley. But the latest UBS outlook is one of the most pessimistic so far.

The Hong Kong government has previously said that it expected the economy to grow at a 2% to 3% rate this year.

After the second quarter GDP figures were released on Wednesday, the government said it would “monitor the situation closely”.

“The government may accelerate its expenditure as a response to the rather weak growth data seen in the earlier parts of the year, ” said Deng and Wang. “The strong fiscal condition held by the [Hong Kong] government allows sufficient room for such acceleration.” – South China Morning Post

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