Chan: Hong Kong Faces Internal and External Threats to Its Economy
The momentum of Hong Kong’s economic growth has been weakening since last year. Economic growth has decreased gradually from 4.6% in the first quarter last year to 0.6% this year, which was the worst-performing quarter in the past decade. External uncertainties continue to plague Hong Kong’s economy, and the recent social incidents have further dampened the local market situation. The short-term economic forecast is not promising.
The China-U.S. trade dispute and conflicts in the technological arena have increased the downside risks facing the global economy. The International Monetary Fund recently revised its global economic growth rate forecast for this year to 3.2%, which is the fourth downward revision since October, with the total downward revision amounting to 0.7 percentage points. This is also the lowest growth forecast since 2009. Although the market expects a reduction in the federal funds target rate by the US’ Federal Reserve, and central banks of other countries have started to reduce their interest rate or adopt a more relaxed monetary policy, the latest economic figures from Europe, America, Japan and the advanced Asian economies reflect that their economies are indeed seeing modest growth. Combining with the possibility of a “Hard Brexit” in the U.K. and the tense geopolitical situation in the Middle East, there is downward pressure on the economic growth of the world and Hong Kong.
In the last few months, impacted by external factors, Hong Kong’s export figures were weak. The value of Hong Kong’s total goods exports has decreased for eight months in a row, with the rate of decline accelerating from 1% at the end of last year to 9% last month. Regarding the tourism and retail sector, visitor arrivals on average increased by 15% per month in the first five months of 2019, but the growth was softened to 8.5% in June. Local consumption incentives have been significantly eroded, with the rate at which domestic retail sales are declining going from 1.6% in the first quarter to 3.3% in April to May combined. According to a survey by the Hong Kong Productivity Council, the Hong Kong SME Leading Business Index has dropped to a three-year low, implying confidence in doing business has been shaken.
We will announce this week the advance estimates on GDP growth in the second quarter of 2019. Taking into account the external macroeconomic environment and domestic economic situation, we will conduct a midterm review of the GDP growth forecast this year, so as to bring the forecast closer to the current situation and possible changes in the coming months.
The overall economic downturn will inevitably affect the labor market, and hence the unemployment rate may rebound from the low figure of 2.8%. For those sectors which are more seriously affected, such as import and export, wholesale, and construction, the employment situation has already softened. If local consumption continues to stay weak, employment and income in sectors like retail and catering will face downward pressure. The government will consider measures to “support enterprises, safeguard jobs,” so as to stabilize the economy and benefit the people’s livelihood.
For the financial market, it has operated smoothly without abnormal Hong Kong dollar fund inflows. We will continue to monitor the market situation closely and prepare ourselves for possible risks. The assets of the Hong Kong banking system are of high quality with a sufficient rate of liquidity and a consolidated capital adequacy ratio above international standards, which is very robust and healthy.
The recent controversy over the amendment of the extradition bill has provoked large-scale public processions and protests, along with a series of violent incidents, affecting both large and small local traders. Many people working in the retail and catering sectors saw a notable drop in business. I believe we all understand that the longer the protests continue, the more significant the impact will be on SMEs and small traders, which will in turn affect the livelihood of some residents. Besides, these incidents have also undermined Hong Kong’s international image and business environment. To foreign enterprises and tourists, Hong Kong seems to have become unstable and unsafe, affecting their desire to travel, do business and invest in Hong Kong. If the situation persists, our employment and livelihood will be affected.
All the people who care about Hong Kong are deeply concerned about the recent incidents and their development. Many people are experiencing emotional distress due to division and violence, as well as the tension and turbulence that have filled society. Apart from worrying about our relatives and friends, we are more worried about the future of Hong Kong. Regardless of one’s stance on the matter, we are all yearning to find ways to resolve the current crisis.
At this critical moment, our individual decisions are particularly important, as they will influence the present circumstances, as well as the future of the next generation. I sincerely hope that everyone can pause and think before taking any action, reject violence, and not allow hatred and violence to become rooted and proliferate in our community.
Social division, hatred and violence are strong forces that will further tighten our already tense society into deadlock. Every one of us should contribute to resolving this serious conflict. Even with difference stances, there can still be mutual respect, accommodation and understanding. We must reject violence, communicate with each other, seek mutual understanding and find solutions for society. Although it might not be a simple challenge under the current social atmosphere, I would urge everyone to treasure Hong Kong as our home, and make a concerted effort to safeguard our homeland.
Paul Chan Mo-po is the financial secretary of the Hong Kong Special Administrative Region. The Chinese version of this article was originally published (link in Chinese) on Sunday.
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