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Economic Update

2020/06/26

IMF downgrades global growth forecasts

The International Monetary Fund (IMF) has lowered its global growth forecast, as the Covid-19 pandemic continues to unfold, creating a more negative impact on economic activities in the first half of 2020 than originally expected. The IMF now predicts global output to shrink by 4.9% this year, 1.9 percentage points below its April forecast.

According to previous experience during recessions, private consumption remains relatively stable compared to investment spending, as consumers rely on their own savings, family support or the public welfare system to keep spending levels smooth. However, the IMF noted, this time could be quite different because the lockdowns and social distancing measures imposed by many economies have taken a heavy toll on consumption.

In Hong Kong, economic activities have been gradually stabilising as the spread of the coronavirus appears to be waning and the Government has relaxed some social distancing restrictions. One indicator is that the May IHS Markit Hong Kong Purchasing Manager’s Index rose to 43.9 from 36.9 in the previous month, although it remained below the 50-mark, which separates expansion in the private sector’s activities from contraction.

Elsewhere across the globe, there have been growing concerns that some major economies may have to prolong their lockdown measures, or halt plans to ease restrictions amid fear of a resurgence of Covid-19 cases.

Since Hong Kong is an externally oriented economy, the city may still have a long way to go before its economic activities can return to pre-Covid levels. According to mobility data generated by Google which tracks visits to different categories of locations, traffic in retail and recreation on 22 June remained 11% lower compared to the baseline, and that in public transport was 17% lower. While the business environment remains full of high uncertainties, one thing for sure is that businesses in Hong Kong may need to adapt to the new normal of economic activities shifting from off-line to online.

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