Country Report Hong Kong January 2009

Outlook for 2009-10

• Hong Kong's chief executive, Donald Tsang, is becoming increasingly unpopular. Although he remains safe in his position, the Chinese government is growing concerned that unrest will increase as the recession deepens.
• China's decision in December 2007 not to permit full direct elections for the post of chief executive before 2017 or for the Legislative Council before 2020 will limit the options for political reform available to Mr Tsang.
• As revenue streams weaken and government spending increases to support growth, the fiscal deficit will grow. Deficits equivalent to 3.8% and 2.4% of GDP are expected in 2009 and 2010 respectively.
• The Economist Intelligence Unit expects real GDP to contract by 3% in 2009, given that a reduction in export volumes and financial turmoil will contribute to a weaker job market, which will undermine consumption.
• Hong Kong's current-account surplus will remain substantial. Slowing export growth will be offset by weaker import expansion, and the services surplus will remain huge.
• Consumer price inflation is forecast to slow to 1.1% in 2009, down from an estimated 4.2% in 2008. Falling food prices and weak domestic demand will be the two main factors suppressing inflation in 2009.

Monthly review

• The Frontier party merged with the Democratic Party in late November 2008. The move will help to reduce divisions in the camp favouring full democracy.
• Banks failed to pass on the 100-basis-point cut that took policy interest rates down to 0.5% in December. Given that deposit rates are already close to zero, banks are seeking to protect their lending margins.
• In December the mainland government announced a 14-point package to aid Hong Kong's economy. The reforms will allow trade settlement in renminbi for Hong Kong companies trading with firms in some mainland provinces.
• Hong Kong's exports fell by 5.3% year on year in November, to HK$231.2bn (US$29.8m). Imports fell 7.9% to HK$239.3bn.
• Unemployment edged up to 3.8% of the labour force in September-November, from 3.5% in August-October.
• Retail sales in October rose by 0.3% year on year. There were falls in sales of consumer durables and cars.
• Sales of residential housing were down 79.3% year on year in November in unit terms, according to the Land Registry. The value of sales dropped by 87.2% year on year.

Source: Country Report

This report covers the following industry codes:
SIC Code: 20;60;65
NAICS Code: 311;52;53

This report covers the following industry codes:
SIC Code: 20;60;65
NAICS Code: 311;52;53