Country Report Hong Kong September 2009

Outlook for 2009-10

• Hong Kong's chief executive, Donald Tsang, will remain in his position throughout the forecast period, despite concerns that his popularity may fall as unemployment in the territory continues to rise.
• 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.
• As revenue streams weaken and government spending increases to support economic growth, the fiscal deficit will widen. The deficit will average 3.7% of GDP in the next two years.
• Despite the fact that Hong Kong came out of recession in the second quarter of 2009, the Economist Intelligence Unit expects the economy to contract sharply this year, with real GDP falling by 3.3%.
• 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 prices are forecast to fall by 0.3% in 2009, after rising by 4.3% in 2008. Falling food prices and weak domestic demand will be the two main factors bringing down inflation in 2009.

Monthly review

• Mr Tsang has begun preparations for his forthcoming annual policy address, which will take place on October 14th, by planning a series of 30 consultation meetings.
• The government plans to start selling a package of government bonds worth HK$100bn (US$12.8bn). The move has increased speculation that Hong Kong may be preparing to abandon the currency's peg to the US dollar.
• Hong Kong's economy is out of recession, after real GDP grew by 3.3% quarter on quarter in April-June 2009. On a year-on-year basis real GDP still fell by 3.8%, but this was down from a contraction of 7.8% in the first quarter.
• On a quarter-on-quarter basis all components of the economy began to recover in April-June, with exports and private consumption experiencing an especially strong rebound.
• In the three months to July unemployment stood at 5.4% on a seasonally adjusted basis, which was unchanged from the level in June.
• The number of tourists visiting Hong Kong fell by 3.4% year on year in the first six months of 2009. The fall was a result of the global economic downturn, as well as fears concerning an outbreak of swine flu.

This report covers the following industry codes:
SIC Code: 49;70
NAICS Code: 22;72