Country Report Hong Kong May 2009

Outlook for 2009-10

• 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.
• 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 (Legco) before 2020, will limit the options for political reform available to MrTsang.
• As revenue streams weaken and government spending increases to support economic growth, the fiscal deficit will grow. The deficit will average 4.2% of GDP in the next two years.
• The Economist Intelligence Unit expects real GDP to shrink by 5.8% in 2009. The contraction will be broad-based and will affect all sectors of the economy, including exports, private consumption and fixed investment.
• Hong Kong's current-account surplus will remain substantial. The territory will continue to record a large trade deficit, but this will be offset by a huge surplus on the services account.
• Consumer price inflation is forecast to fall to 1.1% 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.

Monthly review

• The Hong Kong government's latest budget has passed through Legco, but only after strong opposition from pro-democracy parties.
• The pro-democracy parties had wanted more economic stimulus measures included in the budget, amid fears that low-income groups will be hardest hit by the economic downturn.
• In a case seen as a victory for minority shareholder rights, the Securities and Futures Commission, the securities market regulator, has halted an attempt to take a local telecommunications company, PCCW, private.
• The economic situation in Hong Kong remains bleak. Over the past month unemployment has risen, retail sales have fallen and visitor arrival numbers have remained subdued.
• There are signs that Hong Kong's property sector, which has been badly hit by the economic downturn, may have turned a corner. Lower interest rates and cheaper prices may have tempted some buyers back into the market.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;47;70;15;37;53;49;2834;80;48;10;65
NAICS Code: 52;48;72;23;336;44;22;3254;62;517;212;53