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Hong Kong business activity sinks to lowest since 2009 as protests hit demand

Business activity in Hong Kong's private sector plunged to its weakest level in more than a decade in August as firms continued to reel under trade tensions and monthslong protests in the semi-autonomous territory, according to a survey by IHS Markit.

The seasonally adjusted headline purchasing manager's index tumbled to 40.8 in August from 43.8 in July to mark its worst deterioration since February 2009. A print below 50 reflects contraction, while a reading above that indicates expansion.

New work inflows fell at the sharpest rate since early 2009 as orders from mainland China declined amid trade tensions with the U.S. Respondents also attributed the weak demand to a sharp depreciation in the yuan and domestic political unrest, which has gripped Hong Kong since June due to a controversial extradition bill.

The survey also found growing pessimism among firms as the future output index fell to the lowest level on record.

"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.

While the city's executive authorities recently unveiled an economic stimulus plan to support growth, "any further economic weakness will mean policymakers are likely to consider larger stimulus measures," Aw added.

Hong Kong's Financial Secretary Paul Chan warned last month that the city could slip into a recession in the third quarter following a contraction in the prior three-month period.