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Hong Kong Country Risk Reports Q2 2015

Hong Kong Country Risk Reports Q2 2015

Core Views

Hong Kong's economy avoided recession in Q314, with real GDP growth printing at an above consensus rate of 2.7% year-on-year (y-o-y). While we still envisage a modest growth rebound to 3.3% in 2015, dual headwinds from China as well as the teetering domestic property market provide downside risks to this forecast.

We expect a correction in Hong Kong property prices to take hold over the course of 2015, particularly as supply limitations subside and interest rates increase. However, the correction is likely to be relatively mild, with price declines in the range of 10-15% within the realm of possibility.

Extremely large-scale pro-democracy protests, which began in September 2014 and were only wound up in December, failed to bring about any significant political compromise from either the Hong Kong or Chinese governments. While there remains potential for similar protests in the future, we do not believe that Beijing is likely to give in to popular sentiment. As such, our expectations for meaningful democratic reform in Hong Kong remain limited.


Executive Summary
Core Views
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Protests On The Wane Despite Lack Of Progress
Hong Kong's pro-democracy protests have wound down considerably, and we believe that they will continue to shrink over the nearterm.
However, given that it is unlikely that Hong Kong's still-significant pro-democracy contingent will be able to come to a satisfactory
agreement with the government, the potential for future incidences of mass protest will remain.
TABLE: Political Overview
Long-Term Political Outlook
Benign Outlook Despite Democratic Reform Uncertainty
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. The sluggish pace of democratic reforms will continue to cause anger among pro-democracy
supporters, and there is the potential for more large-scale public protests. A lack of affordable housing and rising income inequality also
could pose threats to social stability.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Contraction Avoided, But Downside Risks Remain Prescient
The Hong Kong economy managed to avoid contraction in Q314 despite mass protests in key commercial districts, expanding by 2.7%
y-o-y. While we continue to believe that a modest recovery in growth to 3.3% is on the cards for 2015, we note that downside risks
stemming from the mainland's economic slowdown remain prescient.
TABLE: Economic Activity
Fiscal Policy
Private Healthcare Sector To Play A Bigger Role
The Hong Kong government will continue to shift healthcare provision towards the private sector due to the growing financial strain and
an overburdened public healthcare system. Given the government's proactive efforts in maintaining a relatively balanced fiscal agenda,
we maintain our expectations for Hong Kong's fiscal balance to average a small surplus equivalent to 0.4% of GDP per annum through
2020.
TABLE: Fiscal Policy
Monetary Policy
HKMA To Keep Policy Steady Amid Likely Property Correction
Hong Kong's headline inflation rate has bucked the regional disinflationary trend, posting at 5.1% y-o-y in November 2014. That said, we
see room for inflation to retreat over the coming quarters, particularly with housing inflation set to decline in line with our expectations for
a property market correction. We maintain our forecast for headline inflation to average 3.5% in 2015.
TABLE: Monetary Policy
Balance Of Payments
Mainland Slowdown Clouds Trade Outlook
Hong Kong's trade outlook, which is closely tied with that of China, has declined over recent months in line with falling growth
momentum in the mainland. While we retain our export and import growth forecasts of 7.3% and 7.6%, respectively, for 2015, we note
that risks to these forecasts are to the downside as a result of poor economic growth outlooks in large demand centres including the
eurozone and Japan.
TABLE: Curent Account
hong kong Q2 2015
Chapter 3: 10-Year Forecast
The Hong Kong Economy To 2024
Integration With Mainland Key To Growth
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 3.8% real GDP
growth over the next decade. However, Hong Kong needs to maintain its competitive edge or risk being overshadowed by fast-rising
Chinese cities.
TABLE: Long-Term Macroeconomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: Operational Risk Index
Availability Of Labour
TABLE: Asia – Availability Of Labour Risk
TABLE: Top 10 Source Countries For Migrant Workers
TABLE: Labour Force Employment By Sector (‘000),
Crime Risk
TABLE: Asia – Criminal Risk
TABLE: Crime Statistics
Chapter 5: Key Sectors
Autos
TABLE: Autos Total Market – Historical Data And Forecasts
TABLE: Pasenger Car Market – Historical Data And Forecasts
TABLE: Commercial Vehicle Market – Historical Data And Forecasts
TABLE: Motorcycle Market – Historical Data And Forecasts
TABLE: Ex-Gratia Payment Scheme
Food & Drink
TABLE: Food Consumption Indicators – Historical Data & Forecasts
TABLE: Alcoholic Drinks Value/Volume Sales, Production & Trade – Historical Data & Forecasts
TABLE: Mas Grocery Retail Sales By Format – Historical Data & Forecasts
Other Key Sectors
TABLE: Oil and Gas Sector Key Indicators
TABLE: Pharma Sector Key Indicators
TABLE: Telecoms Sector Key Indicators
TABLE: Infrastructure Sector Key Indicators
TABLE: Freight Key Indicators
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table: Global Assumptions
Table: Developed States, Real GDP GrowtH, %
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table: Emerging Markets, Real GDP Growth, %

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