Hong Kong economy contracted 1.9 per cent in 2019, IMF forecasts, as protests and weak global growth take toll

Phila Siu

Hong Kong’s economy is expected to contract 1.9 per cent this year, the International Monetary Fund said on Monday, worse than the government’s earlier forecast of a 1.3 per cent decline, as officials warned that global growth had yet to show signs of recovery despite the trade war truce.

The IMF made the forecast in a report released on the same day the city’s Census and Statistics Department announced that exports dropped 1.4 per cent in November to HK$359.3 billion (US$46.1 billion), the 13th straight month of year-on-year declines.

“Economic activity in Hong Kong weakened significantly in 2019 as rising trade tensions between the US and China and heightened uncertainty took a toll on exports and investment while private consumption and visitor arrivals have declined due to the social unrest that started over the summer,” the IMF said.

Hong Kong has been rocked by anti-government protests since June, triggered by a now-withdrawn extradition bill.

Hong Kong has been in the grip of protests since June. Photo: EPA

The IMF forecast the city would see gross domestic product growth of 0.2 per cent in 2020, led by private consumption.

“[The] pace of recovery over the medium term is expected to be slower than in previous recoveries as increased trade barriers and disruptions to global supply chains would be a drag on trade-related activities.”

Earlier this month, China and the United States reached a “phase one” trade deal that would halt further tariff increases and lower some already in place. The trade war has rattled the global economy and financial markets over the past 18 months.

The IMF said that risks to Hong Kong’s outlook were tilted to the downside.

“On the external side, further escalation of trade tensions between the US and China and a significant slowdown of mainland China as well as additional barriers, including potential restrictions by the US against China in technology and the financial sectors, could negatively affect growth in Hong Kong,” it said.

“On the domestic side, a deterioration of the sociopolitical situation and delays in addressing structural challenges of insufficient housing supply and high income inequality could further weaken economic activity and negatively affect the city’s competitiveness in the long term.”

Still, the IMF said Hong Kong’s “robust policy framework” and “ample buffers” would help the economy weather the challenges ahead. It urged the government to consider tax reform over the medium to long term to boost revenues.

Paul Chan says the government stands ready to use it fiscal buffers to support the economy. Photo: Winson Wong

Hong Kong’s Financial Secretary Paul Chan Mo-po welcomed the IMF’s recognition of policy frameworks and the buffers in place.

“The government stands ready to make use of our fiscal buffers to support the economy as and when needed,” he said in a statement.

On Sunday, Chan said further measures would be rolled out next month and in the coming budget address to help businesses survive the economic downturn.

Meanwhile, November also marked the 12th straight month of year-on-year declines in imports, dropping 5.8 per cent to HK$385.4 billion in value, figures showed.

There was a trade deficit of HK$26.2 billion for the month.

“While the US and the mainland have reached a first-phase trade agreement, global economic growth has yet to improve and the external environment is still subject to various uncertainties,” a government spokesman said.

Hong Kong’s exports to the US last month dropped 23.7 per cent year on year, but rose 5.2 per cent to the mainland.

Chinese University associate professor of economics Terence Chong Tai-leung believed trade figures would only see improvements in two to three months, adding that the trade war had hit Hong Kong hard because the city was a re-export hub.

He expected GDP to contract in the first quarter next year, before reaching zero growth in the second quarter and moving into positive territory in the third and fourth quarters with the protest movement possibly coming to an end.

He said the government should actively look for businesses that were about to fold or sack staff amid the social unrest and offer them subsidies.

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