Earlier this week, Singapore slashed its 2019 growth outlook to a range of zero to 1% amid collapsing exports and a worsening outlook in key end markets tied to the intractable US-China trade dispute.
While not exactly surprising, the announcement (which came alongside the final read on second quarter growth), was a poignant reminder that the trade frictions are starting to bite – hard. Singapore, like South Korea, is a bellwether of sorts.
In the course of documenting that, we mentioned Hong Kong. “When considered in conjunction with the darkening outlook for Hong Kong and South Korea, the picture for Asia is not pretty”, we wrote. Civil unrest in the city and the threat of an imminent crackdown by the PLA is insult to injury for an economy already reeling from the trade war. Although local equities rebounded on Thursday, Hong Kong shares have been in a veritable tailspin, and property stocks fell into a bear market this week.
Data out earlier this month showed the city’s PMI sank to the lowest since 2009 in July. “Hong Kong’s private sector faced an increasingly gloomy outlook at the start of the third quarter, with latest IHS Markit PMI data showing the deepest deterioration in business conditions since the heights of the global financial crisis”, Bernard Aw, Principal Economist at IHS Markit, said. “The rate of decline in both new orders and business activity was the steepest for over a decade, reflecting worsening demand conditions brought on by an ongoing US-China trade war and an escalation in large-scale political protests in Hong Kong”.
It’s against that backdrop that the government rolled out a $2 billion stimulus package on Thursday.
Financial Secretary Paul Chan said the government will make extra payments to social security recipients, provide subsidies for kindergarten, primary and secondary students, hand out a month’s rent for lower income government housing occupants and dole out a one-off electric subsidy. Businesses will see fees waived and rents reduced. New loans will be made available for smaller enterprises, among other things.
Analysts were immediately skeptical about the efficacy of the measures when it comes to boosting spending.
The news was effectively undercut by Chan’s new forecasts for the economy. GDP will grow (or not) between zero and 1% this year, the financial secretary said. That’s down from 2% to 3% in the previous forecast.
So, the good news is, Hong Kong is adding stimulus. The bad news is, it’s probably too little, too late, to rescue the city and its economy from “the abyss”, as Carrie Lam put it earlier this week.