Hong Kong Business Forecast Report Q2 2008

Publication Date	April 2008
Publisher	Business Monitor
Product Type	Report
Pages	51
ISBN Number	1745-056X
Product Code	BMI01196

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

2008: A Challenging Year For The SAR

We are forecasting economic growth in Hong Kong to slow to .6% in 2008 after accelerating to 6.3% 2007. Hong Kong's Q407 GDP figures revealed an acceleration in growth from the previous quarter, but this belies the downside risks to growth in 2008. The territory registered real GDP expansion of 6.7% y-o-y, up from 6. % in Q 07, buoyed by tight labour market conditions and low costs of credit which ensured domestic demand remained robust, but this was still not enough to prevent Hong Kong's economy expanding by its slowest pace in four years in 2007. While accommodating conditions will ensure domestic demand remains robust in 2008, economic momentum will continue to moderate as weaker external conditions weigh on the city's export sector.

The difference between Hong Kong's short- and long-term political risk ratings reflect the diverging strengths and weaknesses of the territory's political system. The territory's short-term risk rating of 86.0 emphasises the maturity and stability of the city state's society, as well as its broad commitment to policy continuity, but its long-term risk rating of 76.9 underscores its political shortcomings. With mainland China ruling out universal suffrage until at least 2020, and the 'one country, two systems' policy set to run until at least 2047, Hong Kong will continue to enjoy only limited autonomy, which will consequently curtail any significant rise in the city state's long-term rating.

With the US dollar suffering broadbased weakness as a result of the Fed 's aggressive monetary easing of the past six months, the viability of Hong Kong's dollar peg is increasingly being brought into question. While the current exchange rate regime will help support the territory's export sector, it is likely to inhibit Hong Kong's fight against rising inflation. Consumer price growth spiked to a ten-and-a-half year high of 6. % y-o-y in February 2008, and while a reintroduction of the property rate waiver this year will help to depress consumer price growth, it will not address the root of the problem.

Hong Kong continues to attract high levels of foreign direct investment due to its unique position as a business-friendly gateway to mainland China. It benefits from a transparent legal system and highly skilled workforce that has made the city a major hub for international finance, and this strong position will be maintained following the government's decision to further lower the corporate tax rate. The pro-investor climate is also augmented by the absence of red tape, significant corruption or major security threats. Finally, the preferential access that Hong Kong enjoys with the mainland ensures that the territory will carry on drawing substantial overseas investment.

Content

Executive Summary
- 2008: A Challenging Year For The SAR
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- STPR: Emphasising Hong Kong's Strengths
- The difference between Hong Kong's short- and long-term political risk ratings reflect the diverging strengths
- and weaknesses of the territory's political system, with the maturity and stability of the city state's society and
- of its economy contrasted with the lack of true autonomy it is subject to under the auspices of Beijing.
Chapter 2: Economic outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Q407 Data Belies Downside Risks
- Hong Kong's Q407 GDP figures revealed an unexpected acceleration in growth from the previous quarter.
- Balance of Payments
- China To Keep Export Growth Afloat
- Despite exports rising by a faster-than-expected 15.8% y-o-y in January, the outlook for Hong Kong's merchandise
- trade remains increasingly uncertain, as weakness across the territory's major trading partners persists.
- Fiscal Policy
- Expansionary Budget Presents Upside Risks To Inflation
- A stronger-than-anticipated fiscal outturn in FY2007/08 (April-March) has allowed Hong Kong to announce
- an expansionary budget for FY2008/09, aimed at spurring the territory's economy in a year when global
- economic momentum is set to slow.
- Exchange Rate Policy
- HKD Peg: Help or Hindrance?
- Hong Kong is unlikely to alter its long-established pegged exchange rate regime with the US dollar, but
- pressure continues to build on the peg as inflation spikes ever-higher.
Chapter 3: Special Report
- Looking Beyond 2008
- US: The Rebalancing Act
- Unwinding The Imbalances
- We believe that a substantial, multi-year shift in the US external accounts is under way. A weak US dollar
- and subdued domestic consumption should lead to a narrowing in the US's structural current account deficit.
- China: What If We're All Wrong?
- our Core Scenario For China
- We are retaining our positive headline growth projections for China across the forecast period to 2012, with
- our expectations of the continued success of the urbanisation process and export-driven growth model
- underpinning our assumptions.
- Japan: Immigration Key To Long-Term growth
- Demographic Woes Portend Long-Term Decline
- Immigration remains the only realistic way that Japan can overcome its long-term economic challenges.
Chapter 4: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Introduction
- Institutions
- Infrastructure
- Market orientation
- Operational Risk
Chapter 5: Key Sectors
- Autos
Executive Summary
- Vehicle sales grew by an estimated 9.7% in 2007. We do not believe this high rate of growth will be
- maintained in the coming years, forecasting growth over the next five years to be in the region of 1%.
- Telecoms
Executive Summary
- There were 469,000 net mobile phone subscriber additions from end-2006 to the the end of August
- 2007, or growth of 4.97%, for a total of 9.913mn subscribers.
List of Tables
- Table: The Executive Council Official Members
- Table: Economic Activity
- Table: Fiscal Policy
- Table: Exchange Rate Policy
- Table: BMI Business And operational Risk Ratings
- Table: BMI Legal Framework Ratings
- Table: Hong Kong Annual FDI Inflows
- Table: BMI Trade Ratings
- Table: Top Export Destinations
- Table: Hong Kong Automotive Sector Historical Data & Forecasts
- Table: Hong Kong Telecoms Sector - Mobiles