Hong Kong's economy is slumping. Mass protests could make things much worse

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(CNN) — Hong Kong's economy grew at a much weaker pace than expected in the second quarter, hurt by the US-China trade war and a global slowdown. The slump could deepen if recent mass protests continue.

GDP grew by 0.6% in the second quarter compared to the same period last year, according to preliminary figures released by the Hong Kong government on Wednesday. That was the weakest quarterly figure in a decade and well below growth of 1.5% forecast by analysts in a Bloomberg survey.

Compared with the first quarter, GDP shrank by 0.3%. The Hong Kong government said goods exports declined due to setbacks in Asian manufacturing and trading. Investment also fell.

"As local economic sentiment deteriorated visibly in the face of increasing downside risks facing the global economy and other headwinds, private consumption expenditure only grew modestly and overall investment expenditure fell further," a Hong Kong government spokesman said.

Analysts said the outlook for growth in Asia's premier financial hub was weak, and could deteriorate further if protests seen over the past two months continue.

Mass protests have taken place on eight consecutive weekends. The initial spark was a bill that would have allowed extradition to mainland China, but protesters are now demanding greater democracy for the city, an inquiry into alleged policy brutality and the resignation of Hong Kong chief executive Carrie Lam.

"The drag from the US-China trade war looks set to intensify, particularly if the ongoing trade talks break down as we expect," said Julian Evans-Pritchard, senior China economist at Capital Economics. "And with the protests turning more violent and disruptive, there is a risk that they could have a bigger impact on activity in the coming quarters."

Hong Kong's retail and tourism sectors could suffer.

"Whether it is a small shop on the street or a shopping mall, most of them have had to shorten business hours as they wait for the protesters to leave," said Iris Pang, Greater China economist at ING.

Following the latest round of demonstrations, the American Chamber of Commerce in Hong Kong on Monday called for "firm" government leadership to restore sagging business confidence.

"AmCham urges the government to stem any further damage and show clear leadership in meeting the expectations of Hong Kong people and in restoring the city's international reputation for effective governance under the 'one country, two systems' framework," AmCham President Tara Joseph said.

Paul Chan, the city's top finance official, said Sunday that the mass demonstrations have hurt local merchants and "worried all those who are in Hong Kong."

"We expect Q3 to be weaker than previously forecast as the current political turmoil weighs on consumer and business sentiment," noted Tommy Wu at Oxford Economics.

Wu expects Hong Kong's GDP to grow by less than 1% this year, compared with 3% in 2018.