Hong Kong to see first budget deficit in 15 years as unrest costs 2 percentage points of GDP growth

Street stall owners work at their booths in the Sham Shui Po district of Hong Kong, on Nov 30, 2019.
Street stall owners work at their booths in the Sham Shui Po district of Hong Kong, on Nov 30, 2019.PHOTO: AFP

HONG KONG (BLOOMBERG) - Hong Kong is expected to record its first budget deficit since 2004 with the economy sustaining damage equivalent to 2 percentage points of output growth, Financial Secretary Paul Chan said.  

The deficit for the 2019-2020 fiscal year would be due to an adverse economic environment, decreased tax revenue and income from land sales, as well as relief measures announced during the year, Mr Chan told lawmakers at the legislative council on Monday (Dec 2).

The economy is forecast to contract 1.3 per cent in 2019 from a year earlier, Mr Chan said.  

Almost six months of ongoing protests and export pressure from the US-China trade war have put enormous strain on Hong Kong this year.

“Hong Kong’s economy is now in extremely difficult times,” Mr Chan said.

“To restore the economy, different sectors have to come together to stop violence so that social order can be restored, citizens can return to normal life, businesses can resume normal operations, so that room can be created for rational dialogue.”

Retail data for October due later on Monday are expected to show sales declined by almost 23 per cent in October amid a collapse in visitors numbers from mainland China.  

Arrivals from China plunged 45.9 per cent from a year earlier in October, the biggest decline on record, meaning that the annual “Golden Week” holiday in mainland China failed to translate into a tourist bump for local retailers. Overall, visitors to Hong Kong fell almost 44 per cent in the month.  

For retail businesses, that raises the stakes for coming months. Many proprietors will have to make hard choices: whether to continue the fight into next year or give up as leases come up for renewal and employee bonuses must be paid.

Iris Pang, an economist with ING Bank NV in Hong Kong, sees a 70 per cent chance of a wave of store closures among retailers if spending continues to be weak.

The situation is especially dire for catering companies, who typically enjoy brisk business at the holidays though face the prospect of cancellations during periods of unrest.

“Make or break is the correct description for most catering businesses in Hong Kong as some of them have continued in the business just because their rental agreement has yet to be due,” Pang said.

“It is very likely that many catering businesses will close their business if their revenue doesn’t make a comeback during this holiday.” 

The current fiscal year ends March 31, 2020.