Country Report Hong Kong June 2008

Summary

Hong Kong's next election will be that for the Legislative Council (Legco) in September 2008, but the balance between the pro-democracy and pro-China camps in the legislature will not change much.
China's decision in December 2007 not to permit full direct elections for the post of chief executive before 2017 and for Legco before 2020 will limit the options for political reform available to the chief executive, Donald Tsang.
The large budget surplus will be maintained in 2008-09, when it will be equivalent to an average of 3% of GDP.
The Economist Intelligence Unit has revised up its forecast for GDP growth in 2008 to 4.8% (from 4.6% previously) following stronger than expected growth in the first quarter of the year. Real GDP will expand by 4.9% in 2009.
The current-account surplus will remain substantial, owing to the huge services surplus.
Consumer price inflation is forecast at an average of 5.3% in 2008, compared with just 2% in 2007. Higher inflation is being driven by rising food prices and the weakness of the Hong Kong dollar. Average inflation will slow to 4.3% in 2009.

During the past month senior Hong Kong officials have been called on to renounce any foreign citizenship or rights of abode in foreign countries that they may have, in order to prove their loyalty to China.
Hong Kong's annual march to commemorate the June 1989 crackdown on pro-democracy protestors attracted less than 1,000 demonstrators, indicating that the democracy issue has slipped down the list of people's priorities.
In early May the Hong Kong government finally announced moves towards the introduction of a long-awaited competition law. Hong Kong stands out among advanced economies in having no competition law.
Following a controversial pay review, senior civil servants will get pay rises of 6.3% this year, with junior civil servants set to receive increases of 3.9%.
Real GDP expanded by 7.1% year on year in the first quarter of this year, with growth being driven by strong domestic demand.
Inflation reached 5.4% year on year in April, compared with an average of 4.6% in the first quarter of the year. The current high rate of inflation is being driven primarily by higher food prices.