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Hong Kong Country Risk Report Q1 2017

  • October 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views

Hong Kong is likely to experience modest real GDP growth through 2017, and we maintain our forecast for real GDP growth to come in at 1.2% in 2016 and 1.7% in 2017. Trade activity and private consumption in the Special Administrative Region will be undermined by China-related headwinds, coupled with weakness in the domestic real estate market. Hong Kong's September 4 Legislative Council elections saw the opposition pro-democracy alliance gain ground against the ruling pro-Beijing camp, with a group of young politicians gaining seats amid displeasure over the government's failure in pushing for universal suffrage in the territory. However, we see limited prospects for significant change in the city-state's political environment as Beijing is unlikely to yield on its existing position. Meanwhile, Beijing's grip on the city-state will continue to strengthen over the coming years as the Xi administration maintains a politically conservative line. This will likely entail a further widening of the gulf between the electorate and the government, which could have implications on Hong Kong's long-term social stability outlook.

Table Of Contents

Hong Kong Country Risk Report Q1 2017
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Muted Growth Environment To Persist Into 2017........................................................................................................................8
Hong Kong is likely to experience modest real GDP growth through 2017, and we maintain our forecast for real GDP growth to come in
at 1.2% in 2016 and 1.7% in 2017. Trade activity and private consumption in the Special Administrative Region will be undermined by
China-related headwinds, coupled with weakness in the domestic real estate market.
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS......................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS....................................................................................................................................................9
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................10
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................10
Structural Fiscal Position........................................................................................................................................ 10
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................11
Outlook On External Position.................................................................................................................................. 11
TABLE: TOP 5 GOOD EXPORTS ..........................................................................................................................................................................12
TABLE: CURRENT ACCOUNT BALANCE FORECASTS.......................................................................................................................................12
TABLE: TOP 5 GOODS IMPORTS .........................................................................................................................................................................13
Monetary Policy Framework.................................................................................................................................... 13
TABLE: MONETARY POLICY FORECASTS..........................................................................................................................................................14
Chapter 2: 10-Year Forecast................................................................................................................... 15
The Hong Kong Economy To 2025......................................................................................................................... 15
Downshifting As China Cools Off................................................................................................................................................15
Hong Kong is facing a much more uncertain economic outlook over the next 10 years in comparison to the past decade. By far the
largest factor in Hong Kong's shifting fortunes is the ongoing slowdown in the mainland China economy, with which the territory has
extremely deep linkages. While we expect Hong Kong's financial sector to remain competitive, its trade outlook is less sanguine, and we
forecast real GDP growth to average a relatively staid 2.5% per annum through 2025.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................15
Chapter 3: Political Outlook................................................................................................................... 19
SWOT Analysis......................................................................................................................................................... 19
BMI Political Risk Index........................................................................................................................................... 19
Domestic Politics..................................................................................................................................................... 20
Pro-Democrats' LegCo Gain Not Enough To Alter Beijing's Position......................................................................................20
Hong Kong's September 4 Legislative Council elections saw the opposition pro-democracy alliance gain ground against the ruling pro-
Beijing camp, with a group of young politicians gaining seats amid displeasure over the government's failure in pushing for universal
suffrage in the territory. However, we see limited prospects for significant change in the city-state's political environment as Beijing is
unlikely to yield on its existing position.
TABLE: POLITICAL OVERVIEW ............................................................................................................................................................................20
Long-Term Political Outlook................................................................................................................................... 21
Benign Outlook Despite Rising Social Difficulties.....................................................................................................................21
While we believe Hong Kong will remain at or near the top of our political risk index table over the next decade, a number of risks could
lead to rising political instability.
Chapter 4: Operational Risk................................................................................................................... 25
SWOT Analysis......................................................................................................................................................... 25
Operational Risk Index............................................................................................................................................ 25
Operational Risk ...................................................................................................................................................... 26
TABLE: OPERATIONAL RISK.................................................................................................................................................................................26
Business Crime........................................................................................................................................................ 27
TABLE: BUSINESS RESPONSE TO RISK IN HONG KONG.................................................................................................................................28
Government Intervention......................................................................................................................................... 31
TABLE: BUSINESS TAXES.....................................................................................................................................................................................32
TABLE: PERSONAL INCOME TAX.........................................................................................................................................................................32
Chapter 5: BMI Global Macro Outlook................................................................................................... 35
Global Macro Outlook.............................................................................................................................................. 35
Broad Recovery But Three Notes Of Caution.............................................................................................................................35
TABLE: GLOBAL FORECASTS, 2015-2020...........................................................................................................................................................35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %....................................................................................................................................36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...................................................................................................................................37
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................39

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