Hong Kong’s Chief Executive Carrie Lam unveiled 2019 Policy Address yesterday. It proposed some policies to help local companies to alleviate the impact of economic downturn, but those measures seem inadequate in preventing the economy from further shrinking. SMEs focusing on local market will continue to suffer from the glum outlook. Housing policy is another focus. Property transaction may be moderately boosted by relaxation on mortgage, but all other policies are just old wine in a new bottle.
- GDP may shrink in 2019. Hong Kong is facing its first economic recession in a decade amid US-China trade war, shrinking global trade, and its local social events. During 2Q19 when the impact of social events was limited, HK GDP shrank 0.4% QoQ. Expect 3Q19 to slow further. The government has trimmed its full-year GDP growth forecast from 2-3% to 0-1%. IMF also slashed its GDP forecast for HK this week from its original estimate of 2.9% in Jan 19 to 0.3%. As the city’s economic situation continues to darken, we expect the economy to shrink by 0.1% in 2019. If the social order gets back on track in 2020, the economy is expected to rebound by 0.6% YoY.
- Retail sales slumped the most on record. HK retail sales recorded the worst performance on record due to the disrupted tourism and local consumption. Retail sales in Aug 2019 slumped 23% YoY, extending the downtrend to seven consecutive months. The situation is even worse than 1998 and 2003. The outlook is still dim as it will take time to calm social unrest and rebuild the city’s image as international trade and business hubs.
- Job market feeling pain in certain sectors. Despite HK’s unemployment rate staying at 2.9% during Jun-Aug 19, the lowest in a decade, job market in some sectors is feeling the pain from deteriorating economy and facing layoff pressure, including retail, accommodation, food services and tourism.
- Pro-growth measures in Policy Address. Policies to help local companies to expand opportunities across the border by offering tax incentives and simplified procedures and by grabbing more opportunities in “Belt and Road Initiative” and “Greater Bay Area” plans. To provide support to alleviate the impact of economic downturn on small business and people’s livelihood. However, these measures seem inadequate in preventing the economy from further shrinking. Investor sentiment is hard to be restored and it will take time to identify and develop new growth drivers.
- Housing policy – mortgage rule relaxed. Mortgage restrictions are relaxed for homes under HK$10mn. First-time buyers can now borrow 90% on homes <HK$8mn. We believe this can help first-time buyers but their family income have to exceed HK$70k/month. Property transaction may improve but to a limited extent.
- Land supply – new wine in old bottles. Major plans of land supply are for long-term, and the policies are already heard before. Land resumption plan won’t increase supply in the short term unless HK government offers an attractive price to land owners, who may take legal action against the plan. Changing the mix of public/private housing supply from 60/40 to 70/30 would reduce supply of private housing, thereby pushing up house price. Lastly, vacancy tax will be levied but it will mainly affect high-end market.
