Country Report Hong Kong April 2009

Summary

Hong Kong's chief executive, Donald Tsang, is becoming increasingly unpopular. Although he is safe in his position, the Chinese government is becoming concerned that unrest will grow as the recession deepens.
Chinas decision in December 2007 not to permit full direct elections for the post of chief executive before 2017 or for the Legislative Council (Legco) before 2020 will limit the options for political reform available to Mr Tsang.
As revenue streams weaken and government spending increases to support economic growth, the fiscal deficit will grow. The deficit will average 3.9% of GDP in the next two fiscal years.
The Economist Intelligence Unit expects real GDP to shrink by 5.9% in 2009. The contraction will be broad-based and will affect all sectors of the economy, including exports, private consumption and fixed investment.
Hong Kongs current-account surplus will remain substantial. The contraction in exports will be offset by a sharper fall in imports, and the services surplus will remain huge.
Consumer price inflation is forecast to slow to 0.9% in 2009, down from 4.3% in 2008. Falling food prices and weak domestic demand will be the two main factors bringing down inflation in 2009.

Several Legco members were turned back from Macau in March after that territory branded them security threats, prompting outrage in Hong Kong.
The stock market regulator, the Securities and Futures Commission, has been adopting a tougher line against insider trading, with two cases resulting in convictions in March.
Other proposed changes to stockmarket rules, including those regarding auditing standards and listing requirements, may be less positive for the market.
The seasonally adjusted unemployment rate reached 5% in December-February, and payroll per person fell by 2.1% year on year in the fourth quarter of 2008.
Inflation slipped to 0.8% year on year in February, from 3.1% in January. Food prices are no longer soaring, rising by just 5% year on year in February.
Exports plunged by 23% year on year in February, with sharp falls in exports to all major markets. Imports dropped by a smaller, but still substantial 17.5% year on year.

Source: Country Report

This report covers the following industry codes:
SIC Code: 1
NAICS Code: 11