Country Report Hong Kong November 2009

Outlook for 2010-11

• Hong Kong's chief executive, Donald Tsang, will remain in his position throughout 2010-11, despite concerns that his popularity may decline in the wake of the economic downturn. No major elections are expected.
• 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 Mr Tsang.
• Revenue inflows are set to rise in 2010 and spending pressures will ease, but the public finances will remain weak. The fiscal deficit will narrow to an annual average of 1.2% of GDP in fiscal years 2010/11-2011/12 (April-March).
• Economic growth is forecast to recover from an estimated fall of 2.9% in 2009 to an annual average of 3.7% in 2010-11. The recovery in 2010 will be led by a revival in investment and private consumption.
• Hong Kong's current-account surplus will remain large. The territory will continue to record a wide trade deficit, but this will be offset by a huge surplus on the services account.
• Consumer price inflation is forecast to remain moderate in 2010-11, when it will average just 1.7% a year. However, inflationary risks are firmly on the upside.

Monthly review

• Mr Tsang largely ignored the subject of political reform in a policy address to Legco on October 14th. The address focused mainly on economic issues.
• The government is taking steps to address concerns about the emergence of asset bubbles in Hong Kong. For example, it is increasing the size of the deposit required for homebuyers to take out a mortgage.
• A government study has revealed that a planned 50-km rail link between the airports of Hong Kong and the city of Shenzhen in mainland China would cost more than HK$50bn (US$6.4bn) to build.
• The latest economic data series for Hong Kong confirm the view that the economy is continuing to recover. Unemployment fell in September, and retail sales also appear to be recovering.
• Inflationary pressures in Hong Kong remain depressed, despite the headline rate of consumer price inflation rising to 0.5% year on year in September.
• In year-on-year terms, exports from Hong Kong are continuing to fall, although the rate of decline is now slowing. In August exports were down by 13.9%, compared with an average decline of 17.2% in January-August.

This report covers the following industry codes:
SIC Code: 37;49;53;60;80;89;65;47
NAICS Code: 336;22;44;52;62;81;53;48