Hong Kong SAR's prospects linked to deepening integration with mainland

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According to the most recent data for the first quarter of 2006, Hong Kong SAR has enjoyed 11 consecutive quarters of sustained growth, reflecting a supportive global environment, sound domestic macroeconomic policies, continued structural reforms, and growing links with mainland China. GDP grew by 7¼ percent in 2005-slightly lower than the growth rate of 8½ percent recorded for 2004.

According to the IMF's recent economic review, strong real GDP growth-projected to be about 6 percent-and modest inflation are expected to continue in 2006. Given the economy's general openness and its strong links with the mainland, growth prospects will depend on external conditions and mainland developments-particularly, the economy's effectiveness in further integrating with the mainland. Hong Kong SAR's future success as a global financial center will hinge on its ability to assist in the mainland's financial intermediation, and progress will depend on the pace of China's financial liberalization.

The IMF's Executive Board commended the authorities for their skillful macroeconomic management in the face of external shocks over the past few years. Competitiveness will continue to rely on maintaining traditional strengths-namely, flexible productand factor markets-and developing new areas of growth.

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