ECONOMY OUTLOOK
More stimulus may be needed to keep businesses afloat as the challenging economic environment continues
Economic recovery or recession in 2021 hinges on border reopening Budget deficit makes up 11% of GDP, but more stimulus is still needed to keep businesses afloat.
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ong Kong will continue to face challenges in 2021, with analysts’ economic expectations split between a possible recovery and a continuing recession, ultimately depending on how the COVID-19 situation develops as well as government response. The city’s gross domestic product (GDP) could rebound as much as 4% in 2021, according to DBS economist Samuel Tse, provided the border reopens in Q1 as expected. Alicia Garcia-Herrero, chief economist for APAC at multinational financial services firm Natixis, forecasted the same growth but also noted that GDP could fall by as much as 6%. Hong Kong’s mixed outlook is reflected in Financial Secretary Paul Chan’s statement on 3 January, where he echoed expectations for Hong Kong to face major challenges in the first half of the year whilst strong recovery momentum is expected in the second half of 2021.
4 HONG KONG BUSINESS ANNUAL 2021
Financial risks may arise as governments increase their expenditures in response to the pandemic
“We all hope that the economy can recover from the epidemic this year, but the reality is that there are still many risks hidden and we must remain vigilant,” Chan wrote in his official blog post where he also noted that uncertainties, such as the Sino-US relations and the geopolitical situation, would remain. Chan also warned of financial risks that may arise, noting that many governments have significantly increased their expenditures in response to the pandemic, which has caused many economies to build high debts. A study by professional accounting body CPA Australia gave a more pessimistic view. Its recent Hong Kong economic sentiment survey found that 75% of its respondents, or about three in four of accounting professionals, expect Hong Kong’s recession to continue until 2021. In November 2020, professionals told CPA Australia that the global availability of a vaccine is the key to
whether Hong Kong’s economy will recover or recede in 2021. “Global capital markets have reacted positively to news about the development of COVID-19 vaccines. This suggests that investors are increasingly confident that there could be a global economic recovery once a vaccine becomes available,” CPA Australia noted. However, the bleak outlook amongst accountants indicates that the positive global sentiment has yet to reach the real economy and there is some way to go before business confidence turns positive, the accounting firm added. Much of the economic recovery also depends on the recovery and growth of the global economy and Mainland China’s economy. The good news is that Mainland China has mostly reopened, and the world’s second largest economy is set to expand by 2.3% in the whole of 2020, says Fitch. It is the only major economy of the world to record
