Activity in Hong Kong’s private companies fell to a new decade-low in August as the escalating trade war between the US and China and political demonstrations hit demand.

The IHS Markit Hong Kong purchasing managers’ index, which tracks private sector activity in the Asian financial hub, fell to 40.8 in August, down from 43.8 in the previous month, dragging the reading even further below the 50-point level separating contraction and expansion. The value was the lowest recorded since early 2009 when the territory faced a global slowdown due to the financial crisis.

New orders fell at the steepest rate in a decade as orders from China dropped at a record rate, the survey found.

“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 adds to a gloomy picture for the state of Hong Kong’s economy. The city’s economy grew at its slowest pace since the financial crisis in the three months to the end of June, with year-on-year growth at 0.5 per cent. On a quarter-on-quarter basis, the economy shrank by 0.4 per cent during the period. 

The government has also downgraded its growth outlook for the year to between zero and 1 per cent from 2-3 per cent previously, citing the US-China trade war and global growth worries. August saw a dramatic escalation in trade tensions between the world’s top two economies. 

Hong Kong’s summer of discontent began in June when more than a million people took to the streets to oppose an extradition bill that would allow suspects to be sent to China for trial for the first time. 

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The protesters’ demands have since expanded to include calls for universal suffrage and demonstrators have held marches in different districts, pressuring transport networks.

Surveyed companies reported longer delivery times and delays from increased security checks and protest-related disruptions. Protesters have at times blocked major roads across the city, including a key artery that crosses the city’s harbour. 

Hong Kong leader Carrie Lam warned in August that the economic harm from the protests was comparable to that of the devastating Sars epidemic in 2003.

Figures released on Friday showed retail sales fell 11.4 per cent in value in July from the previous year, the biggest drop since February 2016. 

Hong Kong’s Retail Management Association last month said its members had seen a downturn since June and some had seen a 50 per cent drop in sales in August. The association called on landlords to give retailers a 50 per cent rent cut for six months to help weather the difficult times.

Via Financial Times