Territory is adding HK$19.1b in stimulus as unrest hits economy

Hong Kong

HONG Kong's government announced a stimulus package worth more than US$2 billion and said the economy will struggle to post any growth amid the ongoing political unrest.

Gross domestic product (GDP) will expand by between zero and 1 per cent this year, Financial Secretary Paul Chan said on Thursday, revising down the previous forecast of 2 to 3 per cent.

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.

GDP contracted in the second quarter from the previous three months, leaving open the prospect of a technical recession.

Mr 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 (S$326 million) and benefit 1.4 million people.

The total value of the new measures is worth HK$19.1 billion, Mr Chan added.

Among the measures to benefit citizens are 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; and a one-off electricity charge subsidy worth HK$2,000.

The measures to benefit companies include waiving 27 groups of fees and charges to benefit sectors such as retail, catering and tourism.

There will also be a reduction of rental for short-term tenancies of government land, a new loan guarantee product for smaller companies, and government support to retrain workers affected by the 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 global 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 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."

Mr 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, Mr Chan said in his budget speech in February.

"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. " said economist Qian Wan. BLOOMBERG

READ MORE: