In an unprecedented move to help boost the ailing Hong Kong economy, the financial secretary Paul Chan has announced a HK$10,000 cash handout for all permanent residents aged 18 or above.
This creative fiscal policy measure will cost the Hong Kong government HK$71.1 billion (US$9 billion), and along with a number of other new spending plans on healthcare and loans for small businesses, will tip public spending for 2020/21 into a huge deficit of HK$139 billion.
Whilst the deficit will not be sustainable in the long-run, Hong Kong policy makers see it as a necessary measure with their economy in tatters following violent anti-government protests, a trade-war with the US, and most recently the outbreak of the deadly coronavirus. The economy is now in recession with the last two quarters of 2019 recording negative year-on-year growth of -2.8% and -2.9% respectively.
The Hong Kong government will be hoping that this huge injection of cash will go straight into the hands of Hong Kong consumers, and then straight back out again into the pockets of local businesses, kickstarting the economy and hopefully paving the way for a more positive end to the year!
Q1. With reference to the article, what is meant by the term ‘recession’?
Q2. Explain one reason why the Hong Kong economy is now in recession.
Q3. Assess the impact that the fiscal measures announced by the Hong Kong government are likely to have on aggregate demand in the Hong Kong economy.
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