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Adjusting to the “New Normal”

The COVID-19 pandemic has continued for more than half a year. With the evolving epidemic situation, the introduction and subsequent adjustments to the anti-epidemic measures such as social distancing and gathering restrictions have inevitably brought widespread disruption to our economy. The difficulty in containing the epidemic and the pressure facing our economy are more severe than we originally expected. Therefore, last week we revised downward the real GDP growth forecast for 2020 to -6% to -8%, from the original forecast of -4% to -7%. This is the second time that we revise downward the economic forecast this year. The latest forecast has already taken into account the supporting measures implemented under the two rounds of Anti-Epidemic Fund and the Budget, which amount to about HK$280 billion in total or equivalent to 10% of our GDP, and provide cushioning effects of some 5 percentage points to the worsening economy. The Employment Support Scheme has also relieved enterprises’ pressure in laying off staff to a certain extent.

However, in face of the impact brought by the pandemic, the global economic depression, as well as the mounting China-US tensions, the depth and the duration of Hong Kong’s economic recession this time round are out of our expectation, seriously affecting enterprises and workers from different sectors. For instance, the unemployment and underemployment rates have been getting worse over the past few months. The pain being felt by workers is at a level much worse than that in the 2008 Global Financial Crisis. Hardest-hit sectors such as catering, retail and tourism are in a more acute situation.

So, when shall we see the dawn of economic recovery? Domestically, it depends on when our anti-epidemic works can effectively bring down the number of new confirmed local cases, facilitating the gradual resumption of people’s daily lives and economic activities. Externally, it depends on when other countries could curb the pandemic, and also the development of the China-US relations. Indeed, for Q2 this year, Europe, US and Singapore have all seen a double-digit percentage decline in economy. Their economic outlook could hardly be optimistic before the epidemic is contained.

In the coming future, to adapt to the “new normal” of co-existing with the COVID-19 virus, we have to adopt a two-pronged approach: to curb the epidemic while supporting the economy at the same time. As seen from the experience of places around the world, if we only focus on implementing social gathering restrictions and contact tracing, we may slow down the spreading of the virus, but may not be able to break the chain of infection. Yet such measures would put further stress on the already troubling economy. To fight against the epidemic, it is crucial for us to have the capacity in conducting large-scale testing, as well as adequate quarantine and treatment facilities. With the support and assistance from the Central Government, the SAR Government will be better equipped in these two aspects very soon. While we have already strengthened our targeted testing on high-risk groups, our next step is to identify infected persons through the universal voluntary testing scheme, so that instant quarantine and medical treatment could be provided. And by breaking the hidden chain of infection, people's travel and daily lives could be resumed, facilitating the recovery of our economic activities. Only if the epidemic is brought under control, we would be able to resume the travel between Hong Kong and the Mainland as well as other places, giving a stronger push to economic recovery.

With the supporting measures implemented under the two rounds of the Anti-Epidemic Fund and the Budget, the estimated deficit in 2020/21 would likely increase to about HK$ 290 billion and the fiscal reserve is expected to drop from some HK$1,100 billion in end March to about HK$800 billion. This has not yet taken into account the impact of the expected decrease in revenue from taxes and land sale. The current third wave of infections is not over yet and experts have already predicted that there could be another wave of outbreak for winter. As in the case of Auckland of New Zealand, the epidemic resurged after the city had recorded zero new cases for a long period of time. And even with the discovery of vaccine in future, the pandemic may not be over in a year or so. Facing such a difficult and uncertain situation, the Government needs to remain prudent financially. When we provide financial assistance to relieve the pressure of enterprises and people, we have to ensure the proper use of public money and try our best to avoid the rapid shrinking of our fiscal reserve, so that we will continue to be capable of addressing the needs of the society and safeguarding Hong Kong’s financial stability. As regards anti-epidemic efforts, such as facilities, testing, vaccine and manpower, we will allocate sufficient resources in order to safeguard the health of our people.

The Government fully understands the pain being felt by different sectors and is considering how to enhance our support. However, the effect of any supporting measures is limited and temporary. Only the restart of the economy can help increase the income of enterprises and workers.

We will also provide suitable assistance through measures with leveraging effects. For instance, The Hong Kong Monetary Authority together with the Banking Sector SME Lending Coordination Mechanism (Mechanism) have recently further extended a repayment deferment for 90 days for trade facilities under the Pre-approved Principal Payment Holiday Scheme. The Mechanism has already rolled out four rounds of relief measures for corporate customers, including the above Scheme, loan tenor extensions, and the conversion of trade financing lines into temporary overdraft facilities. As at the end of June, banks had approved over 42 000 related applications to support their corporate clients, involving an aggregate amount of over HK$500 billion.

August 16, 2020