The HK government confirmed on Friday that GDP contracted by 0.4% QoQ in 2Q, leaving YoY growth at 0.5% versus 0.6% in 1Q.
Deutsche Bank noted the economy essentially hasn't grown since the US/China trade war began. Cumulative real GDP growth over the past five quarters is 0.16% as the economy has contracted in three of those quarters.
The research house said the economy has stagnated because private demand has stalled. Private building investment peaked in 2016 as the property price outlook became more uncertain over the past couple of years.
DB said the 2014 Occupy demonstrations had little effect on the economy because, while they disrupted traffic in Central for more than two months, they didn't often interfere with the business directly.
This summer's demonstrations have affected local neighbourhoods, significantly disrupting business, it noted. Retail sales fell 6.7% MoM in June, the weakest month (by a narrow margin) in more than seven years.
DB expects that retail sales will fall another 8% QoQ in the current quarter - they were down not quite 3% in 2Q. The government announced a HK$19.1bn relief package, but DB doesn't see this as offering much to change the economic outlook this year.
DB now expects a decline of 0.5% for the full year versus growth of 1.5% previously. It
expects a large sequential decline in GDP in 3Q - on the order of 2.5% QoQ - but expects the economy to stabilize towards the end of the year. DB expects modest growth next year but an expansion of only about 0.5% in full-year GDP.
It expects property prices will continue to fall through the end of the year by a cumulative 10% from the May peak. Fed rate cuts won't likely stimulate much demand given the uncertain domestic and external political climate.
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