Asia’s two bellwether city-state economies, Hong Kong and Singapore, are both headed into recession.
Singapore has already announced that second-quarter gross domestic product fell at an annualized rate of 4 percent over the previous quarter. Following an annualized 4 percent rise in the first quarter, this translates into near zero growth so far this year and only 1.6 percent compared with the same period of 2014.
Hong Kong is due to announce its second-quarter numbers on August 14, which will almost certainly show two successive quarters of contraction and possibly a fall from year-ago performance. Retail sales fell 1.6 percent year–on-year in the first half with the picture worsening in the second quarter and exports to China down 4 percent.
Hong Kong exports to most Asian destinations have been in decline with Vietnam and the Philippines being the only exceptions, reflecting their relatively buoyant conditions. Weak Chinese demand and falling commodity prices are having knock-on effects everywhere. China is also decreasing reliance on imported components.
A drop-off in mainland tourism is hurting retail sales as some locally imposed restrictions are combining with a fall-off in luxury spending by visitors. This, combined with still rising rents, is beginning to feed through to shop closures. The strong US/Hong Kong dollar is also hurting other tourism and this could get worse. China unexpectedly announced today [August 11] that the yuan would be allowed to depreciate more, raising more problems as the Hong Kong dollar remains pegged to a strengthening US dollar. Other Asian currencies are down by anything between 9 percent and 19 percent.
Inflation, which had been running at over 2 percent, is entirely absent in the latest quarter and seems unlikely to pick up anytime soon even though wage rises of around 3 percent are still being recorded and unemployment remains stable for now.
The property sector is no longer looking buoyant and a combination of weakening domestic demand and the likelihood of a rise in interest rates could see prices start to fall. Banks have had to make provisions for rising mainland loan losses so will be cautious in increasing their already high exposure to the local property market.
Much the same situation exists in Singapore where weaknesses in the Malaysian and Indonesian as well as Chinese economies, and the whole oil sector, are putting downward pressure on prices after a long boom. Singapore banks are all reporting rising non-performing property loans.
It remains to be seen whether these are temporary problems or if all the developed economies of Asia (including Korea and Taiwan) are now facing much the same restraints as Europe and Japan – demographics, weak productivity growth and (in Singapore’s case) low returns on its high levels of investment.