INTERNATIONAL – Hong Kong’s government announced a stimulus package worth more than $2 billion and said the economy will struggle to grow at all this year amid the ongoing political unrest.
Gross domestic product will expand by 0% to 1% this year, Financial Secretary Paul Chan said Thursday, revising down the previous forecast of 2% to 3%.
The latest outlook comes as anti-government protests in the city stretch to an 11th week, putting the squeeze on Hong Kong’s businesses and tourism. Gross domestic product contracted in the second quarter from the previous three months, leaving open the prospect of a technical recession.
Chan announced fiscal support measures, led by an increase in the amount of personal income that’s tax free, a measure estimated to cost HK$1.84 billion ($235 million) and benefit 1.4 million people. The total value of the new measures is HK$19.1 billion, Chan said.
Measures to benefit citizens:
- An extra payment to social security recipients
- A subsidy for kindergarten, primary and secondary students
- A month’s rent for lower income tenants of government housing
- A one-off electricity charge subsidy worth HK$2000
Measures to benefit companies include:
- Waiving 27 groups of fees and charges to benefit sectors including retail, catering and tourism
- Reduction of rental for short-term tenancies of government land
- A new loan guarantee product for smaller companies
- Support retraining for workers affected by downturn
Last week, Hong Kong’s chief executive Carrie Lam said her government was considering “bold measures” to support the economy, and had earlier compared the headwinds facing the territory to the SARS epidemic or the aftermath of the 2008 financial crisis.
“The extra budget measures may help relieve pressures of small businesses and households but may not be enough to stimulate spending by much,” said Tommy Wu at Oxford Economics Ltd in Hong Kong. “The fiscal multiplier effect in Hong Kong is pretty small so the impact on the economy could be even smaller than what Paul Chan estimated.”
Chan is sitting on a fiscal reserve of about HK$1.17 trillion, after recording a budget surplus of HK$68 billion for the 2018-2019 fiscal year, according to data from a June government information document.
The current surplus is less than half the HK$140 billion of in the previous year, and was projected to fall further to HK$16.8 billion for the coming year, Chan said in his budget speech in February.
What Bloomberg’s Economists Say…
“Compared with the 2014 Occupy movement, this time the stimulus is of a much larger size. But because the situation is much worse, they will definitely need to push more. ”
Qian Wan, Bloomberg Economics
Hong Kong’s government announced a cash handout of HK$6,000 to all permanent residents in 2011.