Hong Kong Handout Effects Likely to Be Delayed, Goldman Says

(Bloomberg) -- Economists are skeptical that the handouts in Hong Kong’s budget unveiled Wednesday will be able to make an immediate difference to ease the recession gripping the economy after months of protests and virus-shutdowns.

The impact of the most notable spending proposal in the budget, the HK$10,000 ($1,283) cash handout to permanent residents age 18 and older, likely won’t be seen until later this year.

“While this is welcome, KPMG suggests that the government should implement this measure as soon as possible to quickly boost local consumption,” said Stanley Ho, a partner for corporate tax advisory at accounting firm KPMG China.

Financial Secretary Paul Chan’s HK$120 billion spending package in the annual budget included tax breaks for individuals and businesses and funding for various industries. Details of the cash payout will be announced “as soon as possible after obtaining funding approval from the Legislative Council,” Chan said.

Not Enough

Economists and analysts are generally skeptical that the moves alone will be enough to turn things around and offset the damaging effects of the political unrest and novel coronavirus outbreak.

Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA, described the handout as “a drop in the ocean for many” that fails to support those hardest hit by the recession.

The time lag between announcing and implementing the cash handout means it likely won’t help spur economic growth until at least the second half of 2020 or potentially into 2021, Maggie Wei and Andrew Tilton with Goldman Sachs Group Inc. wrote in a report Wednesday.

“The expansionary fiscal stance should help support the economy, which has been in recession for the past two to three quarters,” the economists said. “The financial secretary emphasized that the cash handout measure would be a one-off, and should not be used to assess the sustainability of Hong Kong’s fiscal position.”

Goldman recently lowered its forecast for 2020 real growth to -1.9% “in light of a potential large loss in tourism due to the coronavirus outbreak.” The government projects that output growth will come in between -1.5% and 0.5% for the year.

Economic Impact

Tommy Wu, senior economist with Oxford Economics Ltd. in Hong Kong, said he expects the stimulus to benefit consumption and growth in the second half of the year. However, while the spending package is large, he said the actual economic impact may be minimal.

“Ongoing civil unrest will continue to dampen sentiment, which will limit the impact of the fiscal stimulus,” Wu said in a note. “Moreover, inbound tourism is unlikely to recover to previous levels.”

Once the payout is distributed it should provide a needed boost to the retail sector, including some support to landlords, as the HK$71 billion price tag equals some 16.5% of total retail spending last year, according to HSBC Holdings Plc analysts Raymond Liu and Michelle Kwok.

“Landlords focusing on non-discretionary spending like Link REIT could benefit from additional retail spending given the non-discretionary nature of the trade mix,” the analysts said in a note. “The relief program is unlikely to fully offset the impact of the virus outbreak to the retail market in the near term.”

The government’s introduction of a fixed-rate mortgage plan will open up more loan options for homebuyers but is unlikely to stimulate the property market with the housing shortage still yet to be resolved, the analysts said.

Not everyone is cool to Chan’s budget. Accounting firm PwC welcomed “one of the widest ranging Hong Kong budgets of recent years,” applauding the financial secretary for addressing a broad range of challenges. Yet it called on the city to develop more revenue streams to keep up with rising costs.

“The city’s deep financial reserves have enabled a response that is unprecedented in both scale and scope,” the firm said in a release. “The critical next step is to ensure that these initiatives are implemented quickly and effectively.”

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Jodi Schneider, Fion Li

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