Includes 3 FREE quarterly updates
Core Views
Our 2013 real GDP growth forecast stands at 2.5%, which remains below consensus projections of 3.7%.
The Qianhai-Hong Kong special economic zone will help to bolster Hong Kong's financial sector, and that the sector will continue to be one of the city's main engines of growth. Additionally, the city's banks will see increased opportunities in the offshore yuan services sector which will in turn help to cement its role as the leading global offshore yuan trading centre.
Despite the recent run up in property prices, we are not abandoning our bearish take on the sector. That said, we are not discounting a further marginal near-term upside in prices, as investors ride on bullish sentiment from the equity markets. We believe, however, that receding demand, stemming from further economic deterioration and the government's tightening measures, coupled with the anticipation of a meaningful increase in the housing supply in the coming years, will combine to enforce a correction in property prices in 2013.
Chief Executive Leung Chun-ying's endeavours to improve his public profile through enhancing the city's welfare infrastructure, and the government's use of public infrastructure investment to support economic activity are likely to carry fiscal pressure. However, we believe that Leung's pragmatic policymaking style thus far should help to keep the rise in government expenditure in check. Additionally, the planned increase in government land sales should mitigate, to a certain extent, the fall in tax revenues. We consequently do not envisage much structural risk to the government's fiscal health.
Key Risks To Outlook
Downside Risk To 2012 Growth Forecast: Should the mainland economy experience a sharper-than-expected slowdown, or the sovereign crisis in Europe take a turn for the worse, the ripple effect on Hong Kong means its economy would be disproportionately affected.
Core Views
Our 2013 real GDP growth forecast stands at 2.5%, which remains below consensus projections of 3.7%.
The Qianhai-Hong Kong special economic zone will help to bolster Hong Kong's financial sector, and that the sector will continue to be one of the city's main engines of growth. Additionally, the city's banks will see increased opportunities in the offshore yuan services sector which will in turn help to cement its role as the leading global offshore yuan trading centre.
Despite the recent run up in property prices, we are not abandoning our bearish take on the sector. That said, we are not discounting a further marginal near-term upside in prices, as investors ride on bullish sentiment from the equity markets. We believe, however, that receding demand, stemming from further economic deterioration and the government's tightening measures, coupled with the anticipation of a meaningful increase in the housing supply in the coming years, will combine to enforce a correction in property prices in 2013.
Chief Executive Leung Chun-ying's endeavours to improve his public profile through enhancing the city's welfare infrastructure, and the government's use of public infrastructure investment to support economic activity are likely to carry fiscal pressure. However, we believe that Leung's pragmatic policymaking style thus far should help to keep the rise in government expenditure in check. Additionally, the planned increase in government land sales should mitigate, to a certain extent, the fall in tax revenues. We consequently do not envisage much structural risk to the government's fiscal health.
Key Risks To Outlook
Downside Risk To 2012 Growth Forecast: Should the mainland economy experience a sharper-than-expected slowdown, or the sovereign crisis in Europe take a turn for the worse, the ripple effect on Hong Kong means its economy would be disproportionately affected.
Executive Summary
Core Views
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Benign Outlook Despite Democratic Reform Uncertainty
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 also could pose threats to social stability.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Chief Executive To Remain On The Defensive
Despite rising political and public discontent with Hong Kong's Chief Executive Leung Chun-ying, Beijing's recent endorsement of his administration suggests that his position is safe, for now. Leung's policies in the coming year are likely to be tailored towards boosting public support for his administration and are likely to centre around curbing anti-mainland sentiment, as well as the city's spiralling property prices. That said, we do not expect his policies to negatively impact Hong Kong's business-friendly environment.
CHAPTER 2: ECONOMIC OUTLOOK
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
SEZ Bodes Well For Banking Sector
We believe that the Qianhai-Hong Kong special economic zone will help bolster Hong Kong's financial sector, which will continue to be one of Hong Kong's main engines of growth. Additionally, the city's banks will see increased opportunities in the offshore yuan services sector, which will in turn help to cement its role as the leading global offshore yuan trading centre.
TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Welfare, Infrastructure To Take Centre Stage
Hong Kong's Chief Executive Leung Chun-ying's endeavours to improve his public profile through enhancing the city's welfare infrastructure, and the government's use of public infrastructure investment to support economic activity are likely to carry fiscal pressure. However, we believe that Leung's pragmatic policymaking style thus far should help to keep the rise in government expenditure in check. Additionally, the planned increase in government land sales should mitigate, to a certain extent, the fall in tax revenues. We consequently do not envisage much structural risk to the government's fiscal health.
TABLE: FISCAL POLICY
Monetary Policy
Inflationary Pressure Capped In 2013
We expect consumer price inflation in 2013 to come in marginally lower in Hong Kong as economic lethargy, stemming from a subdued global trade landscape and an expected domestic property market correction, collectively place downward pressure on prices.
Additionally, as before, we do not envisage any change to the city's exchange rate regime despite renewed calls for a review. We expect the currency peg to remain in place at least for the next five years.
TABLE: MONETARY POLICY
Balance Of Payments
Trade Weakness Eventually But Financials May Support
While a rebound in trade activity in Hong Kong is likely to be under way, our relatively less sanguine outlook on the macro climate in the latter stages of the year suggests that trade momentum will eventually wane. That said, we believe that some support may be found in the financial services sector as financial reforms on the mainland prove advantageous for financial institutions in Hong Kong.
TABLE: CURRENT ACCOUNT
Contents
CHAPTER 3: 10-YEAR FORECAST
The Hong Kong Economy To 2022
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 3.5% 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: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: ASIA – ANNUAL FDI INFLOWS
Market Orientation
TABLE: TRADE AND INVESTMENT RATINGS
TABLE: TOP EXPORT DESTINATIONS (US$MN)
Operational Risk
CHAPTER 5: KEY SECTORS
Telecommunications
TABLE: TELECOMS SECTOR – FIXED LINE – HISTORICAL DATA & FORECASTS, 2010-2017
TABLE: TELECOMS SECTOR – INTERNET – HISTORICAL DATA & FORECASTS, 2010-2017
TABLE: HONG KONG OPERATOR ARPUS (HKD), 2010-2017
Real Estate
TABLE: FORECAST NET YIELD, 2010-2017 (%)
TABLE: FORECAST NET YIELD, 2010-2017 (%)
TABLE: FORECAST NET YIELD, 2010-2017 (%)
Other Key Sectors
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS
TABLE: PHARMA SECTOR KEY INDICATORS
TABLE: FREIGHT SECTOR KEY INDICATORS
CHAPTER 6: BMI GLOBAL ASSUMPTIONS
Global Outlook
Growth May Be Turning The Corner
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
Core Views
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Benign Outlook Despite Democratic Reform Uncertainty
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 also could pose threats to social stability.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Chief Executive To Remain On The Defensive
Despite rising political and public discontent with Hong Kong's Chief Executive Leung Chun-ying, Beijing's recent endorsement of his administration suggests that his position is safe, for now. Leung's policies in the coming year are likely to be tailored towards boosting public support for his administration and are likely to centre around curbing anti-mainland sentiment, as well as the city's spiralling property prices. That said, we do not expect his policies to negatively impact Hong Kong's business-friendly environment.
CHAPTER 2: ECONOMIC OUTLOOK
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
SEZ Bodes Well For Banking Sector
We believe that the Qianhai-Hong Kong special economic zone will help bolster Hong Kong's financial sector, which will continue to be one of Hong Kong's main engines of growth. Additionally, the city's banks will see increased opportunities in the offshore yuan services sector, which will in turn help to cement its role as the leading global offshore yuan trading centre.
TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Welfare, Infrastructure To Take Centre Stage
Hong Kong's Chief Executive Leung Chun-ying's endeavours to improve his public profile through enhancing the city's welfare infrastructure, and the government's use of public infrastructure investment to support economic activity are likely to carry fiscal pressure. However, we believe that Leung's pragmatic policymaking style thus far should help to keep the rise in government expenditure in check. Additionally, the planned increase in government land sales should mitigate, to a certain extent, the fall in tax revenues. We consequently do not envisage much structural risk to the government's fiscal health.
TABLE: FISCAL POLICY
Monetary Policy
Inflationary Pressure Capped In 2013
We expect consumer price inflation in 2013 to come in marginally lower in Hong Kong as economic lethargy, stemming from a subdued global trade landscape and an expected domestic property market correction, collectively place downward pressure on prices.
Additionally, as before, we do not envisage any change to the city's exchange rate regime despite renewed calls for a review. We expect the currency peg to remain in place at least for the next five years.
TABLE: MONETARY POLICY
Balance Of Payments
Trade Weakness Eventually But Financials May Support
While a rebound in trade activity in Hong Kong is likely to be under way, our relatively less sanguine outlook on the macro climate in the latter stages of the year suggests that trade momentum will eventually wane. That said, we believe that some support may be found in the financial services sector as financial reforms on the mainland prove advantageous for financial institutions in Hong Kong.
TABLE: CURRENT ACCOUNT
Contents
CHAPTER 3: 10-YEAR FORECAST
The Hong Kong Economy To 2022
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 3.5% 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: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: ASIA – ANNUAL FDI INFLOWS
Market Orientation
TABLE: TRADE AND INVESTMENT RATINGS
TABLE: TOP EXPORT DESTINATIONS (US$MN)
Operational Risk
CHAPTER 5: KEY SECTORS
Telecommunications
TABLE: TELECOMS SECTOR – FIXED LINE – HISTORICAL DATA & FORECASTS, 2010-2017
TABLE: TELECOMS SECTOR – INTERNET – HISTORICAL DATA & FORECASTS, 2010-2017
TABLE: HONG KONG OPERATOR ARPUS (HKD), 2010-2017
Real Estate
TABLE: FORECAST NET YIELD, 2010-2017 (%)
TABLE: FORECAST NET YIELD, 2010-2017 (%)
TABLE: FORECAST NET YIELD, 2010-2017 (%)
Other Key Sectors
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS
TABLE: PHARMA SECTOR KEY INDICATORS
TABLE: FREIGHT SECTOR KEY INDICATORS
CHAPTER 6: BMI GLOBAL ASSUMPTIONS
Global Outlook
Growth May Be Turning The Corner
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS