Hong Kong to bite the bullet—again

It’s official: Hong Kong’s about to experience big-time pain. So much for the lucky Year of the Water Dragon.

The government yesterday unveiled a load of measures aimed at tiding the city’s residents over the worst of a looming economic crisis fueled by faltering growth, rising prices and weaker investments. It revealed an HK$80 billion package aimed at better preparing the “. . . people for the difficult times ahead.”

These one-off economic alleviation measures in the city’s 2012-13 budget includes:

• A corporate income tax rebate for 2011-2012.
• Waiving of property rates for 2012-2013.
• A personal income tax rebate of up to 75% for 2011/12 (capped at HK$12,000).
• A HK$1,800 electricity subsidy for residents.
• An increase of land supplies to ensure supply stability in the property market.
• Additional measures to support small to medium-sized companies.

These measures are also aimed at encouraging private consumption that accounted for over 65% of Hong Kong's GDP in 2011.

HSBC said the budget measures should, to an extent, help buffer local household spending from the impact of slower global growth, especially as Mainland growth decelerates further in this first quarter and European induced financial turbulence threatens to spill over to affect consumer and business sentiment in leading economies, including the US and Asia.

“But it's important to note that these measures plus a soft landing for China do not guarantee a complete shield against fast cooling Western demand. Growth has further to slow before regaining momentum in the second half of the year,” said HSBC.

Analysts said that while Hong Kong escaped recession in 2011, “. . . another dip into recession remains possible for 2012.”

Nevertheless, growth will be possible this year for Hong Kong, albeit at a slower growth rate of 3.1% from an expected 5%. A “more meaningful rebound” should occur in 2013 with growth expected to reach 5.2%.

For 2011 as a whole, GDP rose by 5.0% year-on-year in line with analysts’ and market expectations compared to the 7.0% year-on-year in 2010. Private consumption in the fourth quarter slowed, improving by only 6.4% year-on-year as against 9.8% in the third quarter.

Citing a bleak and volatile exports outlook for 2012, the government's GDP growth forecast this year was estimated at 1% to 3% year-on-year.

HSBC forecast 3.1% while the consensus was 3.3%. Headline inflation in 2012 is estimated at 4% year-on-year with underlying inflation at 3.5%.

Analysts, however, expect Hong Kong to get back on track to a growth environment as early as this second quarter.