Both Hong Kong and Japan saw lower retail sales for the month of May, providing another dose of sobering economic news for Asia in the wake of last week’s shocking Brexit vote.
Hong Kong saw its retail sales plunge 8.4 percent for the month, said the Census and Statistics Department of the Special Administrative Region of China. Looking at the first five months of the year combined, sales have plummeted 10.8 percent. Japan’s retail sales in May fell 1.9 percent, registering their third straight month of declines, according to the country’s Ministry of Economy, Trade and Industry.
Both markets have been suffering for months, as mainland Chinese tourist flows to Hong Kong have slowed and Japanese consumers have held back on purchases amid a climate of economic uncertainty. Mainland China’s retail sales seem to be holding up well in comparison — they grew 10 percent in May, The National Bureau of Statistics said earlier this month.
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“Once the financial, confidence and psychology channels are taken into account our warning is to not underestimate the depth and reach of financial market contagion to Asia,” Nomura analysts wrote in a research report published after last week’s vote.
The bank’s analysts tentatively lowered their 2016 aggregate GDP growth forecast for Asia excluding Japan to 5.6 percent from 5.9 percent. For China specifically, they trimmed their GDP growth forecast to 6 percent from 6.2 percent, foreseeing weaker external demand from Europe.
“As the EU accounts for some 16 [percent] of China’s total exports, this can be expected to exacerbate China’s already-sluggish external demand,” they wrote.
While they are much smaller economic entities than mainland China, both Hong Kong and Singapore are particularly vulnerable to the Brexit effect, according to Nomura. The bank’s largest GDP percentage point downgrades were for the two international trades hubs, 1 percentage point for Hong Kong and 0.7 percentage points for Singapore.
“We believe that [the U.K.’s vote to leave the E.U.] is likely to push Hong Kong into an outright recession [or GDP contraction of 0.2 percent] in 2016, compared to our previous forecast of low GDP growth of 0.8 [percent],” the analysts wrote.
Hong Kong’s merchant exports to the U.K. and the rest of the EU accounted for 14 percent of its GDP in 2015, the highest in Asia, they said, adding that both Hong Kong and Singapore are heavily exposed to the U.K.’s banking industry.
“We are particularly concerned about an already fragile Hong Kong property market,” they wrote.