Hong Kong needs bigger handouts, fiscal push to lift economic growth from its worst slump in a decade, IMF says

IMF trims Hong Kong’s growth outlook for 2020 as economy heads for first contraction in a decade this year

Washington-based fund recommends stepping up spending through 2024 to widen social safety nets

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The IMF said further escalation in the US-China trade war could have negative spillovers for Hong Kong business and employment in related industries. Photo: Winson Wong

Published: 1:00pm, 4 Dec 2019Updated: 1:59pm, 4 Dec 2019

Hong Kong’s government will have to resort to more handouts and fiscal stimulus measures to pull the city’s economy out of its worst slump since the global financial crisis, the International Monetary Fund said.

The city’s economy will expand by 1 per cent in 2020, according to the fund’s revised forecast released today, a slower pace than October’s prediction of 1.5 per cent, and far below the 2.5 per cent potential growth rate. Hong Kong’s gross domestic product is expected to shrink by 1.2 per cent in 2019, the IMF said, marking the city’s first contraction since 2009 amid a combination of blows from months of anti-government protests and US-China trade war.

The government this week said it will roll out a fourth round of targeted stimulus soon without specifying details, after the economy fell into a technical recession last quarter. Since the IMF concluded its latest assessment on November 4, reports showed the downturn has deepened with a historic slump in retail sales and continued losses in tourism and manufacturing.

The IMF recommends the government to spend an additional 1.5 per cent of GDP each year on widening the social safety nets, such as subsidies for low-income students, housing and infrastructure, as well as education and retraining on the newly unemployed. That should bring the total spending to 8 percentage points of GDP from 2019 to 2024, IMF said.

Hong Kong will have to resort to more handouts and fiscal stimuli to pull the city’s economy out of its worst slump since the global financial crisis, the International Monetary Fund said. Photo: AFP

“Additional targeted spending to vulnerable households and [small to medium sized enterprises] could help cushion the negative impact of a more severe economic downturn,” the fund said. “Retraining programmes as well as housing and infrastructure projects could be scaled up further to support the displaced workers and expedite the supply of land and housing.”