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The key to economic recovery

Entering the fourth quarter, the local COVID-19 epidemic remains under control but is still yet to end. In the face of the continued epidemic, everyone is exploring space to relax under the premise of careful prevention, such as having a walk in country parks and staycation in local hotels. Restaurants and catering places are gradually seeing more diners. These limited outings and consumption activities have provided breathing space for the catering, retail, transportation and service industries, but the overall economic atmosphere, people flows in shopping malls and consumption spending are still greatly constrained. In particular, the unemployment rate just announced went up to a 16-year high of 6.4%, and the job market was under heavy pressure. Everyone is wondering when the economy will improve? How can we get out of the trough? Have we seen the dawn?

Taking a closer look at the three major driving forces of the Hong Kong economy, the local economy might have consolidated at a relatively low level in the third quarter. The sustained rapid economic recovery in the Mainland can be said to be the main force supporting the Hong Kong economy. In the past ten years, the Mainland was Hong Kong's largest export market and import source (accounting for 54% of Hong Kong's merchandise exports and 47% of imports respectively). The Mainland economy grew by 4.9% in the third quarter of 2020. In September alone, exports in US dollar terms rose by 9.9% and imports rose by 13.2%. These two sets of figures also indicate that Hong Kong's external trade performance would very likely improve in tandem in the third quarter. Although Hong Kong's merchandise exports had shown negative growth for six consecutive quarters, the rate of decline narrowed from 7.4% in May to 2.3% in August. It is expected that the export figures for September to be announced soon will show a considerable improvement.

As regards consumption, private consumption had fallen for four consecutive quarters, and the rate of decline enlarged from about 3% in the second half of last year to 14.2% in the second quarter of this year. Although government consumption expenditure continued to increase over the same period, with its growth rate accelerating from about 6% to nearly 10%, this could only slightly mitigate the impact of the plunge in private consumption on the overall economy. Entering September, as social distancing measures have been gradually relaxed alongside receding epidemic, many citizens have increased outings and consumption, and the performance of private consumption is gradually improving. As for fixed investment, the overall market attitude remains cautious.

Overall, judging from the current situation, the Hong Kong economy, having contracted for four consecutive quarters, is yet to emerge from the recession. However, the rate of decline in GDP in the third quarter should have improved notably from that of about 9% in the first two quarters of this year, partly also due to a lower base of comparison in the same period last year. With the Mainland economy regaining momentum and the local consumption sentiment gradually improving, if the local epidemic continues to be under control, the pressure of economic contraction can hopefully be eased slightly.

However, after all economic data can only outline the situation of several major segments. The actual perception of citizens in daily life is like the difference between the "average temperature" in a weather report and the "sensory temperature" in real life. Job security and stable income always constitute the most personal feelings. If you look at the latest unemployment rate in Hong Kong, this sensory temperature is obviously much colder than the macroeconomic situation. The unemployment rate reached a 16-year high of 6.4% in July to September, 0.3 percentage points higher than the preceding three-month period. Directly affected by the epidemic, the unemployment rate in the consumption- and tourism-related industries comprising retail, accommodation and catering services rose by 0.8 percentage point to 11.7%. Looking at the situation this year, the unemployment rate rose from 3.3% at the end of last year to 6.4% in the third quarter of this year, while the underemployment rate rose from 1.2% to 3.8% over the same period. This reflects the austere situation that Hong Kong is currently facing after the shock of social violence and the severe blow of the epidemic.

Against this background, everyone cannot help asking, when will the economy see the dawn? The answer to this question can be complicated, but it can also be very simple. The Mainland, which has the closest economic and trade relationship with Hong Kong, has the epidemic under control, and its economy continues to improve. If the smooth flows of personnel and commerce between the two places can be restored to facilitate a close link with the Mainland's "internal circulation", then even if the "external circulation" is temporarily impeded due to the epidemic and other factors, our economy can still be revitalised substantially. However, the crux of the issue, which is also more complicated, is how to ensure that the local COVID-19 epidemic can be controlled at a level where people in the two places feel at ease and are willing to travel around. Of course, we hope to shorten the time that people need to bear with the economic pressure as much as possible. Therefore, since the COVID-19 outbreak, the Government has devoted more than HK$300 billion in launching a number of support measures, the scale of which is indeed quite large. However, with limited public resources, it is difficult to sustain assistance for a long time, nor can such assistance fundamentally solve the actual problems our economy is facing. Therefore, from this perspective, compulsory testing of different scopes with various targeted groups, and even large-scale compulsory testing, are indispensable tools for epidemic prevention. This is not only conducive to controlling the epidemic, but can also create conditions for reviving economic activities and relieving economic pressures facing workers and enterprises. Hong Kong is a small, externally-oriented economy. This international city has always had relatively large volume of economic activity, and flows of people, goods and capital, which depend to a great extent on maintaining a high degree of business interaction and personnel flow with the Mainland and various places of the world. Only by effectively controlling the epidemic and thoroughly cleaning up local infection cases can we truly create an environment conducive to economic recovery.

October 25, 2020