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Hong Kong: Hong Kong Economy Profile


Hong Kong

Hong Kong

Coping with China’s slowdown

Country Rating A2


  • Being a gateway to China and close ties help Hong Kong capitalize on competitive advantage in finance and services
  • Good record of strong dynamic growth
  • Strong external liquidity and public debt position
  • Sound banking system and proven monetary
  • policy framework
  • Very strong business environment


  • Long-term competition from Mainland cities
  • Sensitive to political developments in mainland China
  • As a small, very open and financially integrated economy, Hong Kong is highly sensitive to global economic and financial shocks
  • Exposed to property sector price fluctuations

Economic Overview

Bouncing back but...

GDP increase decelerated once additional in 2016 (1.9% from 2.4% in 2015) due to limited export opportunities and weak increase in domestic request. In 2017, the economy is set to bounce back (+2.2%) but remain below its long-term performance (+3.5%). Exports of goods and services are set to rise gradually. Reasons include: (i) request increase in advanced economies strengthened, (ii) economic increase becomes additional balanced in China, (iii) activity increase speeds up in the other emerging markets.
Investment should as well improve due to favorable fiscal policies. In the longer term, the outlook is additional uncertain. Initial, a additional protectionist US, weaker increase in China or a stronger local currency (HKD) could hamper the fragile exports recovery. Second, a strong tightening of world financing conditions (due to additional hawkish Fed, e.g.) or a rise in world risk aversion (Brexit) could act as a drag. Domestically, uncertainties stem from the change of chief executive and its policy direction. Against this backdrop, insolvencies are set to remain on an upward trend (+8% in 2017 next +7% in 2016).
Improving request increase in large advanced economies will provide limited cushion due to its nature (additional domestic oriented) and pace (very moderate). Domestic conditions will remain unconducive for private investment increase with tightened monetary policy, lower new orders and volatile financial sentiment. Government support will likely step up with further expenditures in infrastructures and salaries tax cuts. Lower inflation, additional favourable fiscal environment and firm labour market will help keeping private consumption in positive territory.

Monetary policy: on a tightening mode

Monetary policy is determined by the currency board that pegs the HKD exchange rate to the USD. Therefore, interest rates mirror those of the U.S. In that respect, Hong Kong’s monetary policy was tightened in line with the previous Fed hikes. Assuming the FED will continue to raise rates, this trend is set to continue. This will translate into tougher credit conditions for the private sector but as well low inflationary pressures.

Public finances and external position at healthy levels

Hong Kong has built significant buffers over the completed years. Fiscal reserves stand at 37% of GDP. Public deficit is low and fiscal balance is in surplus. The 2017-18 budget is expansionary. It includes tax cuts for households; allowances for senior citizens and the poor; supportive measures for targeted sectors such as travel agents, hotels and restaurants, aircraft leasing companies, construction; and public spending for youth development. Furthermore, the external position is comfortable. Hong Kong continues to record large current account surplus, and maintain large reserves. The external deficit is hefty but should not be a matter of concern in the short-run. Hong Kong benefits from a robust net creditor position: net external financial assets represent 357% of GDP.