Hong Kong may be hit by longer fiscal deficits

An analyst sees weaker growth and high government spending for longer.

Given the continued macroeconomic issues, Standard Chartered said Hong Kong is seen to still face fiscal deficits for longer to fiscal deficits of 5.5% in the economy in 2022, starting April 2022, and 3% in 2023.

The forecast on deficits are due to a hike in government spending and weaker growth trajectory. In 2023, there are expectations that external demand will stay weak, local normalisation will be gradual, and tight monetary conditions will require offsetting by loose fiscal policy.

Under the bank’s outlook, it maintained its 2023 Hong Kong economic growth forecast at 2.4%, which is a conservative number given the favourable base effect and low recovery ceiling it expects.

Whilst there are some domestic bright spots in Hong Kong, there is a limit on what the domestic economy can do to mitigate the external drags amidst traditional export markets such as the US shifting towards a recession.

Standard Chartered said inflation is low on their list of concerns, capped by weak domestic demand, deflationary asset prices, and more government concessions. 

“Falling private property rents should offset transitory pressures from higher food and utility prices; rents and food collectively account for over 50% of the CPI weighting,” it said.