Hong Kong: Another regressive mini-budget for an increasingly big problem

• After the disappointing Policy Address,the Hong Kong government announced the third round of measures to support the economy battering by on going social unrest and the trade war.
• In a previous note, we argued stronger fiscal measures were needed to support growth given Hong Kong’sextremely difficult situation. We noted that the package of HKD 19 billion(or 0.7% of GDP) was too small and too regressive to support the economy from its downward trajectory. But the HKD 2 billion worth of new measures announced today are as small and regressive. It is true that the government support is now seemingly more targeted on the sectors most impacted by social unrest, such as transport, retail and hospitality. Fuel subsidies and the expansion of rent cuts are the core of the package together with measures on tourism to be announced soon. But the problem is these measures support corporates rather than the low-income population. This is once againa regressive packageas income inequality remains a big problem for Hong Kong.
• We believe the current measures taken by the government are not strong enough to ease the cyclical pain(e.g.market sentiment and confidence) and tackle the structural problems(e.g.income inequality and health care). Fuel subsidies may not be relevant if there is no business. Rent cuts could be positive for corporates but it is highly uncertain on whether the sweetener will be passed to employees. In the same vein, subsidies on airfare for domestic residents(a measure which is not yet officially confirmed though) will only drive consumption away to other locations while rebates on hotels for tourists may not be attractive if the light of the tunnel of social unrest remains distant.
• All in all, without a clear roadmap of how Hong Kong could navigate through the negative sentiment, the current measures taken by the government will not be enough for both cyclical and structural problems. A larger, more progressive and targeted stimulus is needed.

?Full report available for NATIXIS clients.