This article is more than 1 year old

This article is more than 1 year old

Hong Kong is on the verge of a recession as its private sector activity plunged to a decade-low in August amid an escalating trade war and its worst political crisis in decades.

The business survey, released on Wednesday, noted “the steepest deterioration in the health of the private sector since February 2009”, adding that spreading pessimism had seen business confidence slump to its lowest on record.

Since early June, Hong Kong has been embroiled in its worst political crisis in decades. The waves of protests, sparked by the controversial extradition bill under which individuals can be sent to mainland China for trial, have entered their 13th week. Over the past three months, the protests have become a broader and increasingly violent anti-government movement as the animosity between demonstrators and police reaches boiling point.

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Beijing sees the increasingly violent demonstrations as a direct challenge to its rule over Hong Kong and has accused “foreign hostile forces”, particularly the United States and Britain, of fomenting unrest.

The survey, the IHS Markit Hong Kong purchasing managers’ index (PMI), sank to 40.8 in August from 43.8 in the previous month. Any figure below 50 indicates contraction.

According to the survey, new business fell to its lowest rate in a decade, as orders from China declined at a record rate. Nearly half of survey respondents reported reduced Chinese demand, citing the ongoing US-China trade dispute, a sharp depreciation in the renminbi and large-scale protests as reasons.

“The latest PMI data reveal a Hong Kong economy flirting with recession in the third quarter as business activity is increasingly aggravated by protest-related paralysis,” said Bernard Aw, principal economist at IHS Markit. “The survey is now broadly indicative of the economy contracting at an annual rate of around 4.0-4.5%.”

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“The rates of decline in output, new orders and export sales accelerated sharply in August,” he said, adding that the only other time that the PMI survey recorded a steeper downturn was during the global financial crisis in 2008-2009 and the Sars crisis in 2003.

It comes after figures on Friday showed tourist arrivals fell 12% in July, with the numbers for August expected to be even worse. Retail sales, another important part of the economy, fell 4% in July.

That data prompted economists at the global consultancy Capital Economics to say that “Hong Kong’s economy is in recession”.