Alicia Garcia-Herrero

Coronavirus recovery: invest rainy day savings to boost Hong Kong’s economy

Public investment to support Hong Kong’s most promising sectors is needed to help cushion the impact of the pandemic on an economy that was already struggling

If the EU can get 27 countries to agree on a recovery fund in a reasonably short period of time, Hong Kong can do so even quicker, provided it has the will

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The view of Hong Kong's skyline from Victoria Peak on July 17. The city’s finance sector can go some way towards lifting the overall economy, but the government must invest in other productive sectors as it cannot do so on its own. Photo: Sun Yeung

Alicia Garcia-Herrero

Published: 9:45am, 6 Aug 2020Updated: 9:49am, 6 Aug 2020

Hong Kong’s GDP declined by 9 per cent in the second quarter, but this figure should be read in the context of a worldwide collapse in GDP growth during the Covid-19 pandemic. Singapore’s economy, probably the most similar to Hong Kong in terms of structure, experienced a much bigger decline during the same period.

Both economies are similarly open, which means the restrictions in international mobility stemming from measures taken to control the pandemic have halted the economy. In addition, increasing strategic competition between the United States and China has hurt both Singapore and Hong Kong, with more noticeable consequences but a smaller economic deceleration for the latter.

Hong Kong’s economic performance in 2020 comes after an already difficult 2019. The city was in recession while virtually the rest of Asia was growing positively before the pandemic hit.

Last year’s recession did not prompt a clear policy response from the government, though. A series of tiny fiscal stimulus packages added up to less than 1 percentage point of GDP. Meanwhile, nothing was done on the monetary and exchange rate side, given Hong Kong’s tight link to the US dollar through a currency board regime.

The pandemic has brought about a bolder stimulus package, but it is still limited compared to most developed economies. Things need to change, and quickly.

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It seems clear that additional government support is both warranted and desperately needed. One key objective should be to support small and medium-sized enterprises so they can retain their workers.