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Tuesday, April 23, 2019, 01:27
HK still needs new policy measures despite improving prospects
By Peter Liang
Tuesday, April 23, 2019, 01:27 By Peter Liang

Less than three months ago, the prospects of the Hong Kong economy looked bleak indeed. Pessimism ruled the markets. Stocks tanked and the once all-mighty property market was in full retreat.

Painting a picture of gloom, many economists lowered their growth predictions for 2019 and warned that rising interest rates and the trade dispute between Hong Kong’s two largest markets, the United States and the Chinese mainland, would combine to wreak havoc on the local economy.

In his budget speech in March, Financial Secretary Paul Chan Mo-po emphasized the challenges lying ahead and set a priority to stimulate growth and protect jobs, while lowering growth forecasts to between 2 to 3 percent for 2019, down from about 3 percent in 2018.

All that has changed since then.

The most pressing needs are not economic stimulation and job protection but rather the increase of financial and labor resources to meet projected needs and, more importantly, new measures to ensure that the economic gains can be seen to be more fairly distributed among workers

The stock market is back on the boil, marking a sudden burst in investors’ confidence. Share prices advanced on all fronts, sending the benchmark index above the so-called “psychological” barrier of 30,000 like hot knife cutting through butter. The rally is backed by record daily turnover which showed that investors have shaken off all worries about a debilitating economic downturn.

More important to many Hong Kong people is that property prices are on the rise, reversing the worrying downtrend that brought average home prices down more than 10 percent since August. Apartment sales in both the primary and secondary markets have increased as homebuyers are coming back in force.

Developers are taking this opportunity to unload their stocks of unsold apartments to the thousands of eager buyers flocking to their sales offices. Property agents estimated that the buying spree has pushed average home prices up by an average of about 4 percent in less than one month.

The main driving force behind this renewed confidence in the asset markets is widely seen to derive from the US Federal Reserve’s latest declaration of “patience”. This is taken by economists and investors to mean that it will not raise interest rates further at least in 2019 and suspend its earlier schedule of quantitative tightening. With the interest rate scare lifted, stock investors and homebuyers are coming back to the market in force.

To be sure, there are little signs showing that the trade dispute will be resolved anytime soon despite progress in recent talks. Meanwhile, global economic growth is expected to be further hindered by the slowdown in Europe. The International Monetary Fund revised its global growth forecast for 2019 to 3.3 percent, down from the earlier projection of 3.5 percent.

But these distant rumbles have failed to make much of an impression in the minds of Hong Kong investors determined to enjoy party time after the euphoria spilling over from the Chinese mainland. There, growth seemed to be assured by the government’s expansive fiscal policy centering on large tax cuts. While the government has sneered at quantitative easing as an economic stimulant, the central bank has lowered banks’ reserve ratio requirement several times last year resulting in a significant increase in the supply of liquidity in the system.

The pickup in economic activity in Hong Kong and on the mainland is expected to lead to an increase in demand for financial, trade and other services that will help to boost domestic economic growth in coming months. Some economic analysts estimate that growth in the first quarter of 2019 would exceed 2 percent year-on-year — up from 1.3 percent in the last quarter of 2018.

Despite the depressed export trade sector, economic growth is widely expected to be driven by the projected increase in government expenditure. This now accounts for more than 20 percent of GDP, consumer spending and fixed asset formation, mainly in building and construction.

Such a shift in economic fundamentals may call for a review of the government’s budgetary policy for 2019. The most pressing needs are not economic stimulation and job protection but rather the increase of financial and labor resources to meet projected needs and, more importantly, new measures to ensure that the economic gains can be seen to be more fairly distributed among workers.

Building more public housing is a long-term undertaking. But there are actions that can produce more immediate results, such as the proposal to abolish the much maligned offset arrangement that robs workers of a fair share of retirement benefits under the already inadequate scheme. 

The author is a current affairs commentator.

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