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Hong Kong Announces $2 Billion Stimulus After Cutting GDP Outlook

DATE POSTED:August 15, 2019

Like the old saying goes, if you can't beat them, bribe them.

After 10 weeks of violent unrest that has practically paralyzed the city, the Hong Kong government is starting to reckon with exactly how much all of this chaos has cost its economy. And to help soften the blow (and maybe help assuage the people's anger, or at least stop it from getting worse), Hong Kong's government announced a stimulus package worth more than $2 billion.

Hong Kong Financial Secretary Paul Chan said Thursday that he now expects HK GDP to grow between 0% and 1% this year, down from earlier forecasts of 2% to 3%.

Here's more from SCMP:

"If growth does hit 0 to 1 per cent, this will be the worst situation we have faced since 2009," he said, referring to the global financial crisis. Chan spelt out a total of seven measures to support enterprises and safeguard jobs, as well as seven other initiatives to relieve people’s burden.

Chan spelt out a total of seven measures to support enterprises and safeguard jobs, as well as seven other initiatives to relieve people’s burden.

"If Hong Kong’s economy grows in the third quarter at a similar pace to the second, the city will be technically in a recession," Chan said.

These dour economic pronouncements come as Hong Kong enters its 11th week of unrest - unrest that was instigated by an extradition bill that city executive Carrie Lam had tried to fast track. The bill would have allowed the mainland to more easily arrest people in Hong Kong then extradite them to the mainland, but after just a few weeks of demonstrations, including one particularly tense episode, Lam suspended the bill, but has refused to let it expire.

Carrie Lam

Meanwhile, Hong Kongers have grown more furious by the police response to their demonstrations.

Now, with Lam's popularity at an all time low, her government has announced a handful of measures. One personal income tax cut is estimated to cost HK$1.84 billion ($235 million) and benefit 1.4 million people, or roughly one-sixth of Hong Kongers.

In total, the new measures will cost HK$19.1 billion, Chan said.

Last week, Lam said her government was considering "bold measures" to support the island's suddenly challenged economy. She compared the demonstrations to the headwinds facing Hong Kong during the SARS epidemic, or the financial crisis.

"The extra budget measures may help relieve pressures of small businesses and households but may not be enough to stimulate spending by much," said Tommy Wu at Oxford Economics Ltd in Hong Kong. "The fiscal multiplier effect in Hong Kong is pretty small so the impact on the economy could be even smaller than what Paul Chan estimated."

Lam's government has a fiscal reserve of about HK$1.17 trillion, after scoring a budget surplus of HK$68 billion for the 2018-2019 fiscal year, according to government data.

Compared to the stimulus unleashed after the 2014 Umbrella movement protests, this stimulus is much larger, said one BBG economist.