A slowing global economy, massive social unrest and the coronavirus leads to helicopter money for the citizens of Hong Kong

• Hong Kong government introduces a giveaway budget on a massive scale worth $120 billion

• Hong Kong's recession will continue throughout 2020

Today Hong Kong’s Financial secretary, Paul Chan, delivered his budget for the next fiscal year. His budget introduces a wide variety of emergency measures that illustrate the depth of the economic crisis affecting this important financial hub.

Hong Kong 2020/2021 budget at a glance

7 million citizens will each receive a one-off payment of $10,000 costing $71 billion

Over $20 billion in support for local businesses

An $18.5 billion tax cut for 1.95 million residents

A $13 billion waiver of residential rates for the year 2020/2021

Healthcare spending is set to rise to $75 billion represents 35% increase

Low interest fixed rate mortgages costing $1 billion will be offered to residents

$700 million to promote tourism in Hong Kong once the coronavirus epidemic is over

Build over 100,000 public housing units by 2025

A bond issuance worth $79 billion comprising green and silver bonds

Government finances in deficit for first time since 2008-9 great recession

Government revenues expected to fall by $53 billion leading to a budget deficit of $37.8 billion for the fiscal year 2020/2021

Fiscal reserves are expected to fall from current level of $1.33 trillion to $937 billion by 2025.

The fiscal deficit will hit an all time high for the next financial year totalling $139 billion representing about 4.8% of GDP.

Fiscal deficits are expected for the next five years.

Hong Kong economy in recession

In the introduction to his budget, Financial Secretary Paul Chan, explained how Kong's economy entered recession in the third quarter of 2019. He put this down to a combination of a slowing global economy, the US China trade war and the massive protests that rocked Hong Kong during the second half of the year.

He stated that Hong Kong's economy contracted by 1.2% during 1919 which was the first annual decline since the global recession of 2009. Hong Kong's exports fell by 4.7% while private consumption fell 1.1% and investment expenditure fell by 12.3%.

Impact of coronavirus

Mr. Chan noted the devastating impact of the coronavirus on Hong Kong’s economy:

“the rapid spread of the novel coronavirus has dealt a severe blow to economic activities and sentiment in Hong Kong. The tourism- and consumption-related sectors, already hard hit by the social unrest, are suffering from a more serious setback and entering a "harsh winter".’’

Chan further pointed to external weakness in the global economy as a further challenge for Hong Kong:

“On the external front, the global economy is still struggling and the growth momentum of many advanced economies remains feeble.’’

Paul, Chan noted the huge impact of the coronavirus on global supply chains:

“The outbreak of the novel coronavirus epidemic will also affect production and transportation in the Mainland and Asia as well as the global supply chain operation. This will deal a further blow to the global economy. The International Monetary Fund has therefore lowered the Mainland and global economic growth forecasts for this year recently.’’

Crisis affecting Hong Kong’s economy

He finished with a frank assessment of the huge crisis affecting Hong Kong’s economy and noted that it continue in recession throughout the next year:
“To sum up, Hong Kong's economy is facing enormous challenges this year. The outlook is far from promising in the near term. Having regard to the stimulus effect of the fiscal measures, I forecast our economy will grow by 1.5 per cent to 0.5 per cent in real terms in 2020.’’
Hong Kong’s government will be hoping that this massive stimulus package will buy them a respite from the massive protests that rocked the city during 2019. Public anger, that arose in 2019, from a variety of social and economic issues may be fueled further by a deepening recession during 2020.

Will central bank stimulus measures stave off a global recession?

It remains to been if governments and central banks across the world respond with similar stimulus programes to help stave off the impact of the coronavirus. The emerging pandemic has greatly accentuated the problems facing a slowing global economy. It is causing massive disruptions of global supply chains and threatens a huge fall in profits for companies across the world.

The recent falls on global stock markets serve as warning of the precarious position facing capitalism. They may force the hand of central banks to resort to injecting ever greater amounts of liquidity to prevent a collapse of financial markets and a liquidity crisis for banks.

We shouldn’t forget that the world’s most powerful central bank, the U.S. Federal Reserve, has already injected over $400 billion into financial markets since last September in an effort to stabilise short term capital markets.

Hong Kong’s economic crisis can be said to be a possible harbinger of the economic headwinds that may plunge the global economy into recession this year. Only time will tell if global central banks huge money printing and rate cuts will be enough to kick the can down the road and stave off recession until 2021.

You can download a copy of the Paul Chan’s budget speech at the link below:
https://www.budget.gov.hk/2020/eng/budget06.html