HONG KONG (Reuters) – Hong Kong unveiled a less expansionary budget for fiscal year 2019/20 yesterday, though with relief measures for individuals and businesses at a time of economic uncertainty and trade tensions as growth slowed sharply.
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Financial Secretary Paul Chan said annual growth halved in the fourth quarter and the outlook for the financial hub is clouded by a trade war between Washington and Beijing.
Hong Kong’s open and trade-reliant economy has been buffeted by external risks, including an economic slowdown in China, cooling property prices and stock market volatility.
Mr Chan said the economy grew 1.3 percent in the fourth quarter from a year earlier, the weakest increase since the first quarter of 2016, and slower than downwardly revised 2.8 percent growth in the previous three months.
The economy grew 3 percent for the full-year 2018, slightly slower than the government’s forecast of 3.2 percent.
Iris Pang, Greater China economist at ING, said in a report the weaker than expected growth was due to spillover from the US-China trade dispute.
“This was mainly a result of the trade war, which dampened export activities and related jobs in Hong Kong and on the mainland, with negative feedback into consumption in Hong Kong.”
The trade-reliant economy is forecast to expand 2-3 percent this year and average 3 percent growth from 2020-2023, Mr Chan said in his televised budget speech.
Hong Kong is expected to record a budget surplus of HK$58.7 billion ($7.5 billion) for 2018/2019, Mr Chan said, less than half the bumper surplus of HK$148.9 billion announced for the previous financial year.
Hong Kong’s economy is vulnerable to simmering trade tensions between the world’s two largest economies and, if unresolved, they pose broader risks to the city this year.
As one of the most open and free economies in the world, Hong Kong’s growth is also highly reliant on capital, trade, tourist and investment flows from China.
Mr Chan’s budget this year was less expansionary than last year with fewer big ticket expenditures though there were a mix of relief measures for individuals and businesses.
Business registration fees were waived for companies this year, and greater funding options would be provided to help those facing liquidity difficulties. Some business sectors, including film, will also be injected with fresh funds to preserve film heritage.
Tax cuts were pared back slightly from the year before, with a 75 percent cut in salaries and profits tax, both capped at HK$20,000.
Mr Chan, however, increased spending for the city’s strained public hospitals with an extra HK$5 billion ($637 million) allocated, and healthcare coupons for elderly residents.
On the frothy property market, now one of the most expensive in the world, Mr Chan said the government has “no intention to withdraw” existing cooling measures despite a recent easing back of property prices.
Some analysts predict prices could rise as much as 10 percent in 2019 after only a short-lived correction .
Property owners, however, were given a one-off full year waiver of property rates, as an alleviation measure, reducing government revenues by HK$15 billion ($1.9 billion).
The financial secretary also called a recently unveiled development plan for the Guangdong-Hong Kong-Macau Greater Bay Area as a “milestone” that would bring “golden opportunities for Hong Kong to explore new directions, open up new horizons and add new impetus”.
The government also announced HK$6 billion to enhance the city’s famous Victoria Harbour, by nearly doubling the length of waterfront promenades to 34 kilometres by 2029.