STUCK IN THE MIDDLE: HONG KONG’S SLOWING ECONOMY

Written by Shane Arriola

What happened?

Perhaps one of the most neglected effects of the trade war between the US and China is its effects on Hong Kong. Once revered as a part of the “Asian miracle”, Hong Kong is expected to slow further this year due to uncertainties resulting from the rift lodged between two of the biggest economies of today. In response, the government has pledged to plough more money into attempts at diversifying the economy in the hope of achieving job stability to further development and progress.

Hong Kong Financial Secretary Paul Chen lamented that “should the external headwinds deteriorate, especially if the US-China trade conflict escalates, global trade, investment and financial markets will be subject to greater shocks. This will not only affect out exports and asset markets, but also dampen local investment and private consumption,”

 

Why is this significant?

Similarly in Singapore, with the recent announcement of the Budget 2019 by the Ministry of Finance, it seems like developed countries, particularly those with open economies, have been affected by rising protectionism.They are expecting and preparing for the global situation to deteriorate. This comes after the recent phenomenon of a revolution seemingly led by the middle-class against inequality and towards populism where he endorsement of Trump’s wall by american voters reflects the currently changing geopolitical landscape. Thus, there seems to be a trend of tapping into reserves for fiscal policies with the intent to compensate for the economic pitfalls and attempt to “restart” the economy.

 

Will it work though?

In Hong Kong’s case, there seems to be clear winners and losers from their Budget 2019. The fiscal stimulus which will be pumped into social sectors would mean increased benefits for social groups like the elderly or students. There will also be developments in healthcare, tourism and education. However, because such fiscal stimulus needs to be financed by reduced tax cuts in order to avoid a deficit, salaried workers are expected to lose out this year.

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