Hong Kong unrest may shake world economy

The protests in Hong Kong are not yet sparking fears that the region will become the next trouble spot for the global economy, but such concerns will grow if the conflict intensifies and ensnares China, economists say.

Hong Kong is small, producing 0.4% of the world's gross domestic product. IHS Global Insight estimates its economy will grow 2.5% this year and 3.2% in 2015.

The region is a small U.S. trading partner, accounting for 0.3% of U.S. imports and 2.7% of exports, according to the Office of the U.S. Trade representative and PNC Financial Group. Pro-democracy protests that don't turn more violent likely would have minimal effects on the global and U.S. economy, says Bill Adams, PNC's senior international economist.

In the short term, continued unrest could disrupt Golden Week, an early October holiday during which Chinese tourists flock to Hong Kong. Jewelry and other luxury retailers in the region could see reduced sales, hurting their stocks and Asian stock indexes more broadly, Adams says. U.S. stock markets could be modestly affected.

Among the bigger risks, he says, is a spread of the demonstrations to China, rattling the world's second-largest economy. China is a major U.S. trading partner, making up about a quarter of U.S. imports and 8.5% of exports. Its economy already has slowed recently.

Another concern stems from Hong Kong's status as a major financial center that supplies capital to China. An escalation of the protests could chill U.S. investment in China, further crimp China's economic growth and ripple across the global economy.

An even more dire scenario could develop if China responded by sending troops to Hong Kong, provoking trade sanctions from other countries, Capital Economics said in a research note.

"Any sign of growing tension between the rest of the world and a large economic and military superpower like China would surely dull investors' appetite for risk," Capital Economics' John Higgins and Gareth Leather wrote.