Economy To Shrink By Up To Seven Percent: Paul Chan

Financial Secretary Paul Chan on Wednesday drastically lowered his estimate for GDP growth this year, saying the economy could shrink by between four and seven percent because of the “serious and enduring” effects of the coronavirus crisis.

Just two months ago, Chan had predicted in his budget a much more optimistic range – from a 1.5 percent contraction, to 0.5 percent growth.

Speaking to legislators vetting his budget blueprint for the year, Chan warned that “many signs show that the decline [in Hong Kong’s GDP] might be even worse than the 2007-2008 financial crisis, or the 1997 Asian financial crisis."

“In light of the recent developments, the epidemic would have a serious and enduring effect on our economy and our GDP performance would be worse than the forecast”, Chan said.

New figures first quarter GDP are due to be released next week.

Chan said the SAR's three major economic drivers – external trade, consumption and investment – have all been hit hard.

He said exports slumped 9.7 percent in the first quarter; tourist arrivals plunged more than 96 percent in February, and the situation was even worse in March.

Unemployment has soared to an almost decade-high of 4.2 percent, while retail sales plunged a record 44 percent in February.

Chan told legislators that the relief measures proposed in his budget in February would incur a deficit of nearly HK$140 billion.

Coupled with an expected drop in revenue from tax and land sales, the finance chief estimates a budget deficit of at least HK$280 billion for the current fiscal year.

But for the 2019-20 financial year, new government data shows the deficit stood at just HK$10.6 billion – HK$27.2 billion lower than initially expected, because fewer people had sought tax deferments than anticipated.

Chan warned that apart from how the pandemic unfolds, the question of whether the economy can return to normal would depend on social stability.

If the social unrest in the second half of last year re-emerges, he warned, more businesses would fold, foreign investors would be driven away, the unemployment rate would continue rising, and more families would be affected.

Even if the government introduces more support measures, he said, they would be useless.

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