Hong Kong’s economy may grow at its slowest annual pace since at least 2012, as a slump in tourist arrivals and exports continues to worsen, Financial Secretary John Tsang said.
The economy may expand by 1 percent to 2 percent in 2016, slower than the 2.4 percent gain last year, Tsang told lawmakers on Wednesday in his annual budget speech. Gross domestic product growth advanced 0.2 percent in the fourth quarter from the preceding three months, below the 0.3 percent estimate of economists surveyed by Bloomberg.
“Local consumption and investor sentiment have been dented by concerns over the uncertainties associated with the U.S. interest rate increases and the dimmer global economic outlook,” Tsang said. “The local economy is laden with risks in the year ahead; the outlook is far from promising.”
With fewer Chinese tourists shopping in Hong Kong, the city’s retailers have seen sales fall for a second straight year, while home prices have dropped 11 percent since September. Tsang is also faced with the challenge of lifting growth as social tension worsens, with a riot two weeks ago sparked by illegal hawkers leading him to warn of worsening unrest and the potential impact on the economy.
The benchmark Hang Seng Index fell 1.2 percent to 19,192.45, taking the decline for the year to 12 percent.
To bolster the economy, Tsang cut taxes for small- and medium-sized businesses and waived license fees for travel agents, hotels and restaurants hurt by the slowdown in tourism. For individuals, the government will increase allowances and reduce salary taxes for the fiscal year starting April 1. The new budget measures will boost GDP by 1.1 percent, he said.
“Despite Hong Kong’s expansionary FY16-17 budget, we expect economic growth to lose more momentum in 2016,” Nomura economist Young Sun Kwon wrote in a research note. “The equity and housing market corrections will likely be a drag on private consumption.”
Nomura cut its 2016 GDP estimate to 1.5 percent, down from 2.3 percent, and its 2017 estimate to 2.0 percent, down from 2.9 percent. Risks remain skewed to the downside, Kwon said.
Tsang began and ended his speech expressing concern about the worsening social tension since the Occupy Hong Kong protests in 2014. The riot at Mong Kok, a popular shopping district, during the Chinese New Year holiday, wrangles among lawmakers, as well as groups shouting insults at tourists are all signs of a polarized society, he said.
“If we should allow the situation to get worse, what lies in store for Hong Kong will be even greater chaos, and our future generations will grow up in the midst of hatred and malice,” Tsang said.
Since the Occupy protests, when students had seized key streets in the city to demand more democracy, groups of activists have emerged advocating independence from China. Some also took part in protests last year against so-called parallel traders coming across Chinese borders to buy daily necessities to resell in China.
Tsang today repeated the government’s commitment to increase housing supply after prices soared to make the city the world’s most expensive place to own a home. The government wants to provide 280,000 public housing units over the next 10 years, and plans to sell land for about 19,000 private homes in 2016-2017, he said.
To help elderly citizens, Tsang also announced plans to issue a “Silver Bond” this year and in 2017 for residents aged 65 and older who are looking for investment products with fixed returns. The government will also issue a new batch of inflation-linked bonds worth HK$10 billion ($1.3 billion), he said.
Tsang estimated that the surplus for the current fiscal year will be HK$30 billion, with the surplus likely to be HK$11 billion in the coming year.
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