Hong Kong’s Covid-hit economy will return to growth this year and expand by between 3.5% and 5.5%, as the city opens up and China’s economic outlook improves, Hong Kong’s financial secretary said on Wednesday.
The Asian financial hub suffered a 3.5% contraction last year, as strict Covid restrictions and weakening global demand hurt spending and exports. It was the third contraction in four years for the city of 7 million people.
After Hong Kong significantly relaxed its Covid curbs last month, it is looking to revive the economy through a raft of measures, including offering cash handouts to residents and cutting salaries tax to boost spending. It’s also stepping up a drive to attract workers and investments amid rising competition from Singapore.
On Wednesday, Hong Kong’s financial secretary Paul Chan said the economy will stage a significant rebound this year, with real GDP growth hitting 3.5% to 5.5%.
“Hong Kong’s exports of goods will still face severe challenges this year. However, the accelerated growth of the [Chinese] mainland economy coupled with the lifting of restrictions on cross-boundary truck movements should alleviate part of the pressure,” Chan said in a speech outlining the city’s budget for the 2023 to 2024 fiscal year.
The number of visitors is also expected to see “a strong rebound” after Hong Kong removed quarantine requirements for inbound travelers.
“As overall economic sentiment improves, private consumption will increase,” he added.
Previously, analysts had broadly raised their forecasts for Hong Kong’s economic growth to a range between 3% and 6.5%.
“We raise our GDP forecast to reflect accelerated post-Covid reopening and improved China prospects,” analysts from Standard Chartered Bank said in a recent research report, adding that they expect Hong Kong’s GDP to expand by 3.2% in 2023 and 3.6% in 2024.
Industries like tourism, trade, and real estate, are set to “ride the crest of Hong Kong’s reopening wave,” they said.
To spur the economy, the Hong Kong government will give out more cash handouts to all adults this year, with each eligible resident due to receive HK$5,000 ($637) in spending vouchers, Chan said on Wednesday. Still, that’s only half of last year’s amount of HK$10,000, as the city’s fiscal deficit has ballooned.
The government will also reduce the salaries tax with a cap of HK$6,000, which should benefit 1.9 million tax payers, Chan said.
Other measures to aid recovery include energy and transportation subsidies to residents, a new capital investment entrant program (which is aimed at attracting overseas investments), more efforts to build a green tech financial market in Hong Kong, and considering allowing stock trading during severe weather. Currently, trading in Hong Kong’s financial market can be suspended under extreme weather, such as a typhoon.