The Hong Kong economy entered a recession for the first time in 10 years as third-quarter economic data showed a 3.2% decrease in GDP. This follows a 0.5% decrease in the second quarter, officially marking a recession.

Hong Kong's economy is suffering from unique, domestic reasons and from the effects of a trade war that has hindered global trade and affected China's export-oriented economy. Given Hong Kong's role in the region as a financial center, its fortunes are typically linked to its neighbors while also having more extreme booms and busts.

Domestic Unrest

This time, Hong Kong's weakness is primarily due to its own combustible, political circumstances. Until May 2019, the Hong Kong 30 Stock Index traded basically with other stock exchanges in the region in terms of direction and percent moves. Since the protests began, Hong Kong stocks have struggled to make any ground. Currently, they sit closer to their December lows, while other indexes are above May highs or even at new highs.

There have been months of protests with some estimating that 1 out of 3 Hong Kong residents has participated in the protests. The protests have resulted in shops closing, public transportation being shut down, airport delays, and tourism sharply declining. There doesn't seem to be any easy resolution. It's not in China's nature to give in to political demonstrations or unrest. The threat of a brutal crackdown persists, adding more tension to the situation.

Government Support

"Frankly, there is no room for optimism," embattled Hong Kong Chief Executive Carrie Lam said at a business conference last week. While there is little hope that the situation is going to improve, one silver lining is recent improvements in the trade war.

Additionally, the government has taken aggressive steps to bolster struggling businesses. Some steps include lowering rents at properties owned by the government, fuel subsidies, available funding for small businesses, a stimulus package to create jobs, and measures to bolster liquidity in funding markets.

Another bright spot for Hong Kong is that companies continue to choose the locale as a place to list their companies. So far, it's had the third most listings after the New York Stock Exchange and Nasdaq. This is an indication that businesses believe that Hong Kong will continue to be a good place to do business in the future.