Hong Kong’s economy faces an unprecedented triple threat as four months of increasingly violent protests, an escalating US-China trade war and a dip in global growth all take a downward-pulling toll.

With tourism and retail sectors tumbling, analysts believe the semi-autonomous Chinese city may have already tipped into its first recession in a decade. Hong Kong stocks, meanwhile, have reportedly suffered their worst quarter in four years as wary investors count their costs.

Financial analysts still doubt that the Asian financial hub’s fixed currency system pegged to the US dollar could falter, if hitherto modest capital outflows accelerate in coming weeks. But recent market activity suggests certain speculation is rising, despite stability in the overnight call rate, about a still unseen liquidity crunch.

Speaking at a news conference, Chief Executive Carrie Lam on October 8 lamented that, compared to last year, visitor numbers to Hong Kong plunged 53.6% in the first six days of October, when mainland tourists usually cross the border for shopping deals during China’s National Day holidays, otherwise known as “golden week” for merchants in the city.

Instead, most malls, supermarkets and even convenience stores were shuttered over the weekend, while widespread vandalism of MTR stations saw Hong Kong’s rail system shut down completely for the first time in its 40-year history, contributing to estimated losses of at least HK$2.8 billion (US$356 million) over the six days, according to reports.

According to official data released last week, retail sales in August plunged by 23% compared to the same period last year to HK$29.4 billion ($3.76 billion), the steepest year-on-year decline for a single month on record, surpassing contractions posted during the 1997–98 Asian financial crisis.

The city had been brought to frequent standstills as violence flared during a general strike on August 5, while a massive peaceful march attended by some 1.7 million people was held on August 18 in defiance of a police ban. That month also saw increased rail disruptions and over 1,000 flights cancelled as protesters staged chaotic airport sit-ins.

Tourism arrivals fell nearly 40% in August from a year earlier to about 3.6 million visitors, the worst performance since the 2003 SARS disease outbreak that claimed hundreds of lives in the city, while occupancy rates at hotels in several districts fell by more than half, according to data from the Hong Kong Tourism Board.

Lam is expected to address the city’s economic problems, and possibly unveil new stimulus measures, during an annual policy address on October 16. The impact of persistent protests on the city’s third-quarter economic data, according to Hong Kong’s embattled leader, would “surely be very bad,” she told reporters on Tuesday.

Hong Kong’s economy contracted in the second quarter, and with no letup in political unrest, soon-to-be-released third-quarter data is bound to confirm a recession, defined as two consecutive quarters of economic contraction, analysts expect.

“We are wary of a technical recession in the third quarter,” OCBC Wing Hang Bank economist Carie Li Ruofan told Asia Times. “Whether economic growth will soften further into the fourth quarter will hinge on the development of local political turmoil and the trade war.”

There are few signs of a breakthrough to resolve a 15-month-old trade war that has weighed on global growth and rattled trade-exposed bellwether economies like Hong Kong and Singapore, with the United States unexpectedly widening its trade blacklist to include 28 Chinese companies ahead of upcoming trade talks in Washington this week.

“Should protests and unrest sustain into the fourth quarter, it is inevitable that the retail, hotel, restaurant, transportation and real estate sectors will take a harder hit and continue to add downward pressure to growth,” she said.

Opinions are mixed as to whether any forthcoming economic support measures by Lam’s administration will be enough to arrest the economic decline.

In August, the Hong Kong government unveiled a HK$19.1 billion ($2.4 billion) stimulus package that included subsidies for low-income earners and businesses, as well as a further reduction in the salaries tax.

“Any positive outcome from a fresh round of US-China trade talk coupled with Hong Kong’s fiscal stimulus and global monetary easing may help to ease the downside risks on Hong Kong’s economy,” said Li. “As such, we still expect that Hong Kong will be able to escape from a full-year recession in 2019.”

DBS Bank economist Samuel Tse is less sanguine.

“Retail sales will continue to contract amid domestic instability, renminbi (RMB) depreciation and a negative wealth effect from the asset market. Exports of goods will continue to shrink due to an escalation of the trade war. Financial services performance will also hinge on the external headwinds down the road,” said Tse.

“We expect a negative growth of 0.6% in the second half of the year, resulting in a zero growth for 2019 as a whole,” he told Asia Times. In August, the government revised its 2019 gross domestic product (GDP) forecast downward to between 0% to 1%, from an original 2% to 3%, though some economists predict a full-year economic contraction.

Bearish market watchers have speculated that the Hong Kong currency peg could break if prolonged unrest and downward factors drain the city’s economy of liquidity. Since 1983, the Hong Kong dollar has been pegged to a narrow trading band between HK$7.75 and HK$7.85 per US dollar.

The city’s de-facto central bank, the Hong Kong Monetary Authority (HKMA), intervenes in the forex markets, either buying or selling as required to keep the Hong Kong dollar trading within the HK$7.75 to HK$7.85 range.

Most economists believe it is still highly unlikely that the current level of economic and financial pressures will force an abandonment of the decades-old currency policy.

OCBC’s Li believes that HK will be able to maintain the existing currency peg system given that financial markets appear to have felt “a milder pain” compared to the city’s retail and tourism sectors. HKMA holds around US$448.5 billion of assets in its foreign exchange fund as of July, which she notes amounts to more-than-double the monetary base.

“Even if there are massive outflows pushing USD-HKD to HK$7.85, we still believe that the sizeable foreign exchange reserve and the strong fiscal reserve will allow the HKMA to well-defend the currency peg system,” she said.

Jeffrey Halley, a senior market analyst with forex broker OANDA, echoed those views: “The HKMA has enough reserves on its own to defend either side of the peg, but if theoretically, they dropped to dangerous levels, they will have swap agreements in place with the People’s Bank of China (PBOC) to borrow their reserves,” he said.

The US Federal Reserve’s lowering of interest rates “theoretically makes the peg even easier to defend,” Halley added, noting that HKMA could also stave off pressure on the currency by asking note-issuing banks Standard Chartered, HSBC and the Bank of China to “create unlimited amounts to keep enough money in circulation, and also cap interest rates.”

Goldman Sachs this month estimated that between US$3 billion and US$4 billion in Hong Kong dollar deposits had flowed to Singapore, the city’s rival international financial center, as of the end of August. According to the bank’s analysts, those outflows are “modest” and “still small” compared with the Hong Kong dollar and US dollar deposits in Hong Kong.

“The capital flight will likely continue, but I think in terms of Hong Kong’s overall economy, it will not be significant with so much wealth tied up in property,” said Halley. Despite grim economic data, Hong Kong’s sky-high property prices have been relatively unshaken by months of unrest, nor has homebuyer demand dampened according to news reports.

“I see no reason for [retail sales] to improve if the protests continue in Hong Kong,” Halley told Asia Times.

“The knock-on effect from the collapse in retail sales will surely start creeping into the rest of the economy with business trips, for example, to the special administrative region also now being cancelled, along with tourism.”