“During an economic downturn, supporting employment is the number one priority of the government”, Hong Kong Financial Secretary Paul Chan said Wednesday, as he rolled out a new package of stimulus measures aimed at supporting the city’s flagging economy amid months of violent protests.
As tipped on Tuesday, Hong Kong is deploying another stimulus package in a bid to put a floor under things as dour data point after dour data point underscores just how perilous the situation really is.
Retail sales collapsed the most on record in October, numbers out this week showed, and Chan recently said the city will log its first budget deficit in 15 years due to falling tax revenue, declining income from land sales, the cost of stimulus and the generalized economic malaise.
Read more: Horrific Data, Spiraling Violence Force Multi-Billion Dollar Stimulus Efforts In Besieged Locales
The new measures announced on Wednesday are targeted at small and medium-sized businesses and bolstering employment, the government said.
The cost of the new package: $511 million. That sounds like a drop in the bucket, frankly. It’s much smaller than the previous package and likely won’t quell outside calls for the government to do more.
The IMF on Wednesday called for Hong Kong to “significantly” boost fiscal stimulus to around 2.5% of GDP. Prior to the new measures, that figure was less than 1% although, on the “bright” side, if GDP continues to collapse, it will be easier to hit the IMF’s “target”. Here’s an excerpt from the Fund’s assessment:
As the cyclical downturn continues, GDP is expected to contract by 1.2% in 2019. Growth is projected to rise to 1 percent in 2020 led by a recovery of private consumption but remain well below potential growth of about 2½ percent. With increased trade barriers and disruptions to global supply chains as a persistent drag on trade-related activities, growth would recover at a slower pace than in previous recoveries.
In a testament to how bad things are, the business outlook for the city darkened further in November, pushing the PMI for the whole economy to 38.5. That is obviously horrible and it comes amid an equally horrific slump in exports.
“November PMI data indicated that Hong Kong’s private sector suffered its worst downturn since the 2003 SARS crisis, with the latest survey indicators painting a picture of gloom for the Special Administrative Region”, Bernard Aw, Principal Economist at IHS Markit lamented. “The average PMI reading for October and November combined showed the economy on track to see GDP fall by over 5% in the fourth quarter, unless December brings a dramatic recovery”.
Note that last bit: If things don’t get better this month, Q4’s GDP print could be outright heinous.
The new stimulus measures will include water and sewer bill subsidies, waivers on business property taxes and installment plans for profit and payroll taxes. “For instance, with a married couple, say one of them is laid off and they find it difficult to meet tax payments on time, then they may apply to the Inland Revenue Department to have payments rearranged by installment”, Chan said.
Here are some additional details on the package from the South China Morning Post:
On utilities charges, the government will subsidise commercial users by paying 75 per cent of their electricity bills, capped at HK$5,000 per month, for the next four months to March 31. Some 430,000 commercial users will be financed by up to HK$20,000, costing the government HK$2.3 billion.
Commercial users will also be exempt from paying 75 per cent of their water and sewage charges, with water fees capped at HK$20,000 per month and sewage charges at HK$12,500 per month over the same period. This will cost the government HK$340 million and benefit about 250,000 commercial users.
To help the recycling industry, the government earmarked HK$100 million as rent subsidies for operators.
