With vaccines on the horizon, the world will hopefully see the end of the Covid-19 pandemic this year. But the impact on the global economy has been severe. Three experts shared their thoughts on the economic outlook for Hong Kong in 2021 at a Chamber webinar on 7 January.
The good news is that we could be over the worst. Based on GDP data, Hong Kong’s economy bottomed out in the second quarter, said Government Economist Andrew Au. A recovery in exports and consumer spending, and a strong financial sector led to a significant improvement in the third quarter that is likely to continue. However, Au added, this recovery has been uneven.
“The trading and logistics sectors are recovering, and in the financial sector, markets have remained active. On the other hand, retail sales are still weak as tourism remains at a standstill.”
Uncertainty for the near term remains, amid surging Covid-19 cases in the United States and parts of Europe, he added. “The pandemic is the single most important factor determining the economic outlook for this year.”
Au said that the Government had spent HK$310 billion on relief measures, which had helped many businesses to survive. And while the Government will maintain a proactive fiscal policy: “Measures will be more targeted and are more likely to be one-off, rather than recurring.”
The Government’s official forecast will be released on 24 February, but he pointed out that almost all private forecasts assume Hong Kong will resume positive growth this year, ranging from 2% to 9%. Reasons for optimism include vaccines, growth in the Mainland, and trade agreements including the RCEP in Asia, and CAI between China and the European Union.
“The economic gravity of the world has been shifting from west to east, and there will be ample economic and business opportunities available to Hong Kong,” Au said. “Our companies and professionals can actively participate in China’s dual circulation strategy through the Greater Bay Area – leveraging our competitive edge in international trade and business, and professional and high-value services.”
Considering the economic impact of the pandemic, Professor Terence Chong of the Chinese University of Hong Kong pointed out that many economies, including Hong Kong, had seen a recovery in the third quarter. In Mainland China, retail sales and investment returned to more normal levels, and exports even reached a historically high level.
To get a clear picture about Hong Kong, Chong said it was more accurate to look at data and the city’s economic structure.
“People may have the wrong impression that the economy is bad because a lot of restaurants have shut down,” he said. “But only 3% of Hong Kong’s economy is accommodation and food services.”
Looking at Hong Kong’s biggest sectors, exports and re-exports had bounced back, and the financial sector had remained buoyant.
In terms of risks for the Hong Kong economy, the first is the Covid crisis, Chong said. Others include the ageing population and low labour-force participation, household debt, U.S.-China tensions and competition from other cities.
Another talking point has been the prospect of companies and individuals leaving Hong Kong. Chong explained that while there is no direct data on emigration numbers, applications for a Certificate of No Criminal Conviction had risen by about 10%. However, the actual number of applications is small, so may not be significant.
Perhaps more important is the number of new companies being incorporated in Hong Kong. While the number of local companies has gone down, non-Hong Kong companies registering here actually increased in 2019.
The asset management sector has proved to be particularly resilient. “The Hong Kong dollar is still strong, and Hong Kong banks’ balance sheets have reached historical highs. People are still moving money into Hong Kong,” Chong said.
Other opportunities will come from the Greater Bay Area, fuelled by the new infrastructure links that will increase our integration with this dynamic area.
Nicholas Kwan, Director of Research at the Hong Kong Trade Development Council, then shared his insights. He explained trade is known as the “first in, first out” industry, as it is usually the first to be affected by any economic downturn, but also the first to recover.
“Trade was the first sector to go into negative growth in early 2019,” he said. “We were hit quite badly, not just by the U.S.-China trade tensions, but also the fact that the overall trade environment has been quite bad since 2018.”
This environment could last much longer than the Trump administration, he warned.
Kwan noted that the supply chain disruptions seen in the early days of the outbreak were dealt with very quickly. “The problem then switched from supply to demand, with lockdowns in many major markets.”
Another problem is the fact that the normal channels on the demand side – such as buyers visiting manufacturers and trade shows – have been disrupted.
“We are recovering, but it is not a strong recovery. Overall, the global markets are still weak,” he said. “Some of the major markets for Hong Kong exports – the U.S. and the E.U. – have been hit quite badly.”
On a more positive note, sentiment in Hong Kong is currently at the highest level in almost two years, according to HKTDC’s regular surveys.
Of those surveyed, the biggest concern is still the pandemic. “The next concern is global market demand,” Kwan said. “These are inter-related, but we can’t blame everything on the pandemic. The global economy has not been doing well for some time.”
Some businesses have reported cutting their prices, which means that they may have to work harder to see a profit. Overall, Kwan predicts a return to growth, but does not expect total export volumes to reach 2018 levels in the near term.