Hong Kong Business Projection Industry Update Quarter 3 2012

  • April 2014
  • -
  • Business Monitor International
  • -
  • 42 pages

Includes 3 FREE quarterly updates

Core Views
We have revised our 2012 growth projection downwards and expect real Gross Domestic Product growth to slow from 5.0% to 2.2%, compared with our previous estimate of 3.0%. This falls within the government's growth projection of 1-3% and against consensus expectations of 3.0%. Hong Kong's property industry is presently undergoing a necessary correction. The government is likely to ramp up the supply of land while an expected economic downturn will impinge on demand. We believe the effects of a corrective real estate industry will duly place considerable stress on the economy, with private consumption likely to be the hardest hit.
With money supply growth rolling over, loan growth expected to slow down markedly and economic growth prospects remaining downbeat, we expect the broader disinflation trend to maintain its course. We expect the service economy to witness a marked slowdown. Key merchanting and transportation services will be hurt by the slowdown in trade volumes while financial services exports will be adversely affected as the initial public offering industry remains subdued.

Key Risks To Outlook
Downside Risk To 2012 Growth Projection : Should the mainland economy experience a sharper-than-expected slowdown, or the sovereign debt crisis in Europe take a turn for the worse, the ripple effect on Hong Kong means that its economy would be disproportionately affected.

Table Of Contents

Executive Summary 5

Core Views
...5
Key Risks To Outlook5
Chapter 1: Political Outlook.. 7
Industry SWOT Analysis 7
BMI Political Risk Ratings.. 7
Domestic Politics. 8
Reflection On 2012 CE Election....8
Leung Chun-ying won Hong Kong's 2012 Chief Executive Elections on March 25 with more than double the votes of frontrunner and
Beijing-favourite Henry Tang. However, his public support remains low given his purported political leanings and this is likely to be
the main source of concern regarding his tenure. Near-term volatility in the business environment is unlikely given that he will have to
placate and win over business leaders in order to consolidate support for his administration.
TABLE: HONG KONG POLITICAL OVERVIEW8
Long-Term Political Outlook... 9
Benign Outlook Despite Democratic Reform Uncertainty..9
While we believe Hong Kong will remain at or near the top of our political risk ratings table over the next decade, a number of risks
could lead to rising political instability. The sluggish pace of democratic reforms will continue to cause anger among pro-democracy
supporters, and there is the potential for large-scale public protests. A lack of affordable housing and rising income inequality could also
pose threats to social stability.
Chapter 2: Economic Outlook.. 13
Industry SWOT Analysis ... 13
BMI Economic Risk Ratings.. 13
Rebound Set For An About-Turn14
The recent uptick in Hong Kong's Q411 real Gross Domestic Product growth is likely to reverse in the first half of 2012. Weakening external demand
conditions should see Hong Kong's exports take a hit. Meanwhile, the correction in the domestic real estate industry is likely to gather
pace in 2012, with ramifications for consumption and investment spending. Consequently, we have revised our 2012 projections and now
see real Gross Domestic Product growth slowing to 2.2% from a previous estimate of 3.0%.
TABLE: ECONOMIC ACTIVITY....14
Balance Of Payments... 16
Service Economy Set For Marked Slowdown16
Given expectations of slower global trade flows, we believe Hong Kong's service segment will be unable to maintain the strong growth
seen in the previous two years. Throughput volumes have been in decline since H211 and look set to remain weak through much of
2012, meaning that key merchanting and transportation services will be hit. Moreover, with the initial public offering industry remaining
relatively dormant in H112, financial services exports are likely to maintain their descent. We thus see a modest expansion in Hong
Kong's services economy in 2012, with the full-year services surplus rising marginally to 26.7% of Gross Domestic Product from 26.4% in 2011.
TABLE: CURRENT ACCOUNT16
Fiscal Policy... 18
Budget May Fan Inflationary Pressure.18
The FY2012/13 budget appears to have been relatively well received, especially since it was targeted at lower to middle-income
households. Most of the relief measures for both individuals and businesses take the form of tax concessions and a rise in
allowances. We believe that the government measures pose an upside risk to inflation while the plan to increase the supply of land is
likely to have a greater effect on the mid-tier housing industry than on the luxury sector .
TABLE: FISCAL POLICY....18
Monetary Policy.. 19
Disinflation To Maintain Its Course.19
Hong Kong's consumer price inflation (CPI) maintained its deceleration with combined January-February CPI coming in at a lower 5.4%
y-o-y compared with 5.7% in December. With money supply growth rolling over, loan growth expected to slow down markedly and
economic growth prospects remaining downbeat, we expect the broader disinflation trend to maintain course. We highlight that upside
risks remain from imported inflation from the mainland, although we expect any uptick to be a transitory phenomenon.
TABLE: MONETARY POLICY.19
Chapter 3: 10-Year Projection 21
The Hong Kong Economy To 2021. 21
Integration With Mainland Key To Growth ....21
Hong Kong's long-term outlook remains reasonably bright. While a developed economy, increased cooperation between Hong Kong
and China offers a unique opportunity for the Special Administrative Region to benefit from the mainland to further drive economic
growth. We therefore expect Hong Kong to resume its strong economic expansion over the coming years and average 3.5% real Gross Domestic Product
growth over the next decade. However, Hong Kong needs to maintain its competitive edge or risk being overshadowed by fast-rising
Chinese cities.
HONG KONG - LONG-TERM MACROECONOMIC FORECASTS21
Chapter 4: Business Environment 23
Industry SWOT Analysis ... 23
BMI Business Environment Risk Ratings 23
Institutions 24
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS..24
TABLE: BMI LEGAL FRAMEWORK RATING..25
Infrastructure. 26
TABLE: LABOUR FORCE QUALITY.26
TABLE: ASIA, ANNUAL FDI INFLOWS.27
Market Orientation... 28
TABLE: TRADE AND INVESTMENT RATINGS....28
TABLE: TOP EXPORT DESTINATIONS29
Operational Risk. 30
Chapter 5: Key Segments ... 31
Freight Transport 31
TABLE: AIR FREIGHT, from 2007 to 2016 ....32
TABLE: MARITIME FREIGHT - PORT OF HONG KONG, from 2007 to 2016 ('000 TONNES)... 32
TABLE: INLAND WATERWAY FREIGHT, from 2007 to 2016 ....32
TABLE: ROAD FREIGHT, from 2007 to 2016 33
TABLE: RAIL FREIGHT, from 2007 to 2016 ..33
Real Estate 36
TABLE: FORECAST RENTS - (HKD PER SQ M/MONTH).36
TABLE: FORECAST NET YIELD, from 2008 to 2016 (%).36
TABLE: FORECAST RENTS - (HKD PER SQ M/MONTH).36
TABLE: FORECAST NET YIELD, from 2008 to 2016 (%).36
Other Key Segments ... 39
TABLE: AUTOS SECTOR KEY INDICATORS.39
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS..39
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS39
TABLE: OIL AND GAS SECTOR KEY INDICATORS40
TABLE: PHARMA SECTOR KEY INDICATORS...40
TABLE: TELECOMS SECTOR KEY INDICATORS....40
Chapter 6: BMI World Assumptions. 41
World Outlook.... 41
World Economy Continues To Muddle Through ...41
TABLE: GLOBAL ASSUMPTIONS....41
TABLE: DEVELOPED STATES REAL Gross Domestic Product GROWTH FORECAST.42
TABLE: REAL Gross Domestic Product GROWTH CONSENSUS FORECASTS...42
TABLE: EMERGING MARKETS REAL Gross Domestic Product GROWTH FORECAST43

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