Country Forecast Hong Kong August 2017 Updater

Country Forecast Hong Kong August 2017 Updater

  • August 2017 •
  • Report ID: 1698044 •
  • Format: PDF


  • The territory's new chief executive, Carrie Lam, was sworn in on July 1st. Her term will run until 2022. Ms Lam's prominent role in the previous government suggests that major divergences in policy are unlikely under her administration.
  • The Economist Intelligence Unit does not expect substantive electoral reform to make headway in the next five years. However, Ms Lam is likely to place more emphasis on improving education.
  • Ms Lam's government will continue the previous administration's efforts to reduce housing costs by promoting more construction of residential units. However, policy efforts will remain too timid to have much effect in 2017-21.
  • A failure to meet public expectations or present a convincing vision for Hong Kong's future role will sap support for Ms Lam's government and feed anti-China sentiment. This will boost the so-called localists in the opposition camp, who seek more self-determination for the territory. Their rise will put even more strain on relations between Hong Kong and the mainland-Chinese authorities. The central government's efforts to curb their participation in mainstream politics in Hong Kong will risk further radicalising the opposition.
  • The peg between the Hong Kong dollar and the US dollar will be maintained in 2017-21, at a rate of around HK$7.8:US$1. However, in the longer run the local currency will eventually be pegged instead to the renminbi, reflecting deepening financial and political links with the Chinese mainland.
  • The budget surplus will fall in fiscal years 2017/18-2018/19 (April-March) as a decline in property prices drives down the volume and price of land sales, reducing government revenue. Accelerating economic growth will support higher fiscal surpluses in 2019/20-2021/22.
  • Improving external demand conditions will help the economy to grow by 3% in 2017. A sharper economic slowdown in China in 2018 and a short, cyclical recession in the US in 2019 will subdue growth in Hong Kong's exports to those countries. This, coupled with a local property market downturn in 2018, will ensure that average annual economic growth in 2017-21 remains modest, at 2.7%.
  • A weaker Chinese renminbi will depress the value of local imports in 2017-18, resulting in a smaller merchandise trade deficit. This effect will be reversed in 2020-21. The widening of the goods trade deficit will see the current-account surplus fall from the equivalent of 6.2% of GDP in 2018 to 0.9% in 2021.


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