Hong Kong Country Risk Report

Providing comprehensive data and in-depth analysis of political, financial and economic risk.

Report includes: BMI's Core Views, 10-year Forecasts, BMI's Economic Risk Index, Political Stability and Risk Index, Long-term Political Outlook, Operational Risk Index, SWOT Analysis and Structural Economic Sections

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  • Understand and measure the political, business environment and operational risks to your company
  • Gain insight on emerging trends that could support, strengthen or disrupt your activities in the market
  • Benefit from 10-year macroeconomic forecasts and insight into the structural characteristics of the economy
  • Get the long-term political outlook and explore possible scenarios for change
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Hong Kong Country Risk Report
Product Price
$1,195.00

Hong Kong

Core Views

  • Hong Kong's economic narrowly beat consensus expectations in Q315 despite myriad domestic and external drags on growth. However, the 2.3% print confirms our expectations for the city-state's economic growth to cool in line with a stumbling mainland economy, and corroborates our full-year real GDP growth forecast of 2.5% for 2015. Tepid external conditions and the rising propensity for a domestic property price correction will continue to weigh on the economy in 2016, and we have therefore marginally downgraded our real GDP forecast to 2.3% for 2016, from 2.5% previously.

  • Hong Kong's residential property market is at a tipping point, and a correction appears ready to take hold in 2016 as supply constraints fade and interest rates rise. At the same time, affordability is extremely stretched relative to median household incomes, and we believe that the confluence of these factors spell a difficult outlook for the property sector over the coming years. This will hit both construction activity as well as the financial services sector in the country. That said, we do not foresee an acute correction taking hold in 2016, and instead expect moderate price declines.

  • Hong Kong's quadrennial legislative elections in September are unlikely to produce a significantly different government than the one currently in power in the city-state, as the failure to achieve universal suffrage has left intact a hybrid-electoral system that favours the pro-Beijing camp. 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.

Key Risks

  • The potential for a financial or economic crisis in China continues to be by far the biggest risk factor for Hong Kong. Such a crisis would hit Hong Kong hard given its deep trade and financial linkages to the mainland, and the high proportion that financial and trade services comprise of Hong Kong's economy. We also continue to see a tail risk of a Hong Kong dollar devaluation (taking the form of an adjustment to the currency's peg versus the US dollar) as volatility in the Chinese yuan ramps up. Hong Kong's increasingly deep ties with the mainland could make it difficult for policymakers to maintain the peg versus the US dollar should the CNY experience an acute sell-off, thereby putting downwards pressure on the decades-old peg.

Macroeconomic Forecasts (Hong Kong 2014-2017)
Indicator 2014 2015e 2016f 2017f
BMI/Census and Statistics Department
Nominal GDP, USDbn 289.6 308.6 324.4 342.4
Real GDP growth, % y-o-y 2.3 2.5 2.3 3.0
Consumer price inflation, % y-o-y, eop 4.9 3.5 2.0 3.0
Exchange rate HKD/USD, eop 7.76 7.77 7.77 7.77
Budget balance, % of GDP 3.3 2.7 2.4 2.4
Current account balance, % of GDP 1.8 2.3 2.1 1.9
Executive Summary
5
Core Views
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Little Room For Compromise On Suffrage Plans
8
TABLE: POLITICAL OVERVIEW
8
Long-Term Political Outlook
9
Benign Outlook Despite Democratic Reform Uncertainty
9
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Activity
14
Headwinds To Intensify Despite Q215 Outperformance
14
TABLE: ECONOMIC ACTIVITY
14
Fiscal Policy
15
Property Market Plans Little Threat To Sound Fiscal Position
15
TABLE: FISCAL POLICY
16
Monetary Policy
17
HKMA Policy Complicated By Fed, PBoC Uncertainties
17
TABLE: MONETARY POLICY
18
Balance Of Payments
20
Trade Prospects Unlikely To Improve In 2016
20
TABLE: CURRENT ACCOUNT
20
Chapter 3: 10-Year Forecast
23
The Hong Kong Economy To 2024
23
Integration With Mainland Key To Growth
23
TABLE: LONG-TERM MACROECONOMIC FORECASTS
23
Chapter 4: Operational Risk
25
SWOT Analysis
25
Operational Risk Index
25
Operational Risk
26
TABLE: OPERATIONAL RISK INDEX
26
Education
27
TABLE : ASIA - EDUCATION RISK
28
TABLE: TOTAL GRADUATES OF TERTIARY EDUCATION BY SUBJECT ('000)
29
Government Intervention
33
TABLE: ASIA - GOVERNMENT INTERVENTION RISK
34
TABLE: RESIDENT TAXABLE INCOME RATE
35
Chapter 5: BMI Global Macro Outlook
37
Global Outlook
37
Global Growth Weak As EMs Squeezed
37
TABLE: GLOBAL ASSUMPTIONS
37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
38
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
39

Assess your risk exposure in Hong Kong with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Hong Kong with confidence.

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