Hong Kong SAR: Growing Despite Uncertainties


Despite being repeatedly buffeted by powerful global cross-currents, Hong Kong SAR’s economy has grown steadily in recent years, according to IMF economists.


  • Economy has strong buffers, but faces multiple challenges
  • Higher interest rates could leave households and corporate sector exposed
  • Property sector appears to be slowing
  • In their yearly report on the economy of Hong Kong SAR, the IMF economists noted that it faces multiple challenges related to the domestic property sector, the slowdown in Mainland China, and the increase in U.S. interest rates.

    While the economy is entering a potentially testing period ahead, the risks are manageable with the strong buffers in place, thanks to deft policy management and ahead-of-the-curve regulatory standards,” said Malhar Nabar, head of the team for Hong Kong SAR.

    “The region is expected to grow at 2½ percent in 2016, marginally higher than in 2015,” he said.

    Spillovers from China: strong and may intensify

    The report noted the decline in tourists from the Mainland and re-exports to and from the Mainland.

    “Mainland visitors accounted for around 40 percent of overall retail sales in 2014, up from almost 25 percent in 2009. A downturn on the Mainland therefore also hurts tourism and retail sales in Hong Kong SAR,” said Nabar.

    The report also identified the closer financial integration with the Mainland through various channels, including banking claims, offshore U.S. dollar securities issuance, offshore RMB business, Shanghai-Hong Kong Stock Connect, and Mainland-Hong Kong Mutual Recognition of Funds.

    “The integration has brought several benefits to Hong Kong SAR, but also leaves it vulnerable to inward spillovers,” said Nabar.

    “If high-frequency indicators in early 2016 point to a significant weakening of activity, the FY2016/17 budget should proactively provide additional support than currently envisaged, with an emphasis on expanded relief measures for vulnerable households, small businesses, and accelerated urban renewal and infrastructure spending where possible,” he said.

    Rising cost of debt with higher interest rates

    The assessment noted that the high household and corporate leverage leave the private sector exposed to rising debt service costs in the event of a sharper-than-anticipated rise in interest rates. Private consumption would be disrupted if interest rates were to spike. Rising costs of refinancing and rolling over corporate debt could inhibit investment.

    “The dynamism of Hong Kong SAR’s small open economy as an international trading and tourism hub, and premier financial center also leaves it exposed to global economic forces beyond...

    To continue reading