Hong Kong Country Risk Report Q4 2018
Despite Hong Kong's real GDP growth registering the fastest quarterly y-o-y expansion since 2011, we believe that the economy will face challenges over the coming quarters from rising interest rates and increased external uncertainties stemming from escalating trade tensions between the US and China.
Universal suffrage has so far been rejected by the Chinese central government, and we see limited prospects for significant change in Hong Kong's political en-vironment as Beijing is unlikely to yield on its existing position. Chief Executive Carrie Lam was chosen by an election committee of approximately 1,200 people on March 26, 2017 to lead the territory over the next five years. Beijing's grip on the city-state will therefore 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 negative implications on Hong Kong's long-term social stability outlook.
Major Forecast Changes
We have revised up our 2018 real GDP growth forecast to 4.0% to reflect the 4.7% y-o-y surge in Q118, and we believe that this acceleration in growth is unlikely to be sustainable over the coming quarters.
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 Hong Kong's economy.
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