Hong Kong’s economy is holding up reasonably well despite its substantial dependence on exports that are adversely affected by weaker global and Chinese demand.
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More than half of Hong Kong’s exports are destined for mainland China. Nevertheless, improving demand conditions in the U.S. and Europe (Hong Kong’s second and third largest export markets) will provide some counterbalance over the coming quarters, according to Tuuli McCully of Scotiabank.
Private consumption will remain the main pillar of economic activity as a tight labour market continues to support household income gains. The current unemployment rate of 3.3% is low by historical standards.
Public sector outlays, particularly large-scale infrastructure projects, will provide further support to the economy. Hong Kong’s real GDP grew by 2.3% y/y in the third quarter of 2015, following a 2.8% expansion in the April-June period. Real GDP gains will likely average 2.5% y/y in 2015-17.
Hong Kong’s public finances are healthy and budgetary surpluses since 2004 have allowed the territory to accumulate sizable fiscal reserves. In the absence of independent monetary policy, fiscal policy is the primary tool for dealing with any external shocks.
Budget surpluses will likely average 2.8% of GDP in 2015-17, according to the International Monetary Fund (IMF).
A lower oil import bill is reflected in a smaller trade deficit this year as Hong Kong imports virtually all of its oil needs, thereby offsetting the impact of weak export performance.
Services provision to mainland China will keep the services trade balance in a substantial surplus. The current account surplus will likely average close to 2½% of GDP in 2015-17. ■
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