Feb. 17, 2011 -
PRLog -- Weaker Global Outlook To Hit Domestic Economy Hong Kong's economy expanded by an impressive 6.5% year-on-year (y-o-y)
in Q210, but we caution a downturn is looming given the city's dependence on global trade and our expectation of waning external demand over the coming months. We maintain our real GDP growth forecast of 5.4% for 2010, in line with the government's revised forecast of 5.0-6.0%, and a below-consensus 1.5% for 2011. Meanwhile, the minimum wage commission has reportedly decided on a minimum hourly wage level of HKD28-29 (US $3.60-3.70), and we believe the legislative council will approve the recommended rate in the coming months after Chief Executive Donald Tsang presents the proposed figure to the council in November. However, we believe the implementation of a minimum wage is a step in the wrong direction that may partially erode Hong Kong's advantage of being a leading free market economy. C hina's Standing Committee of the National People's Congress has approved Hong Kong's constitutional reform package, which included amendments to the selection process for Hong Kong's chief executive and the formation of the Legislative Council from 2012. The next steps will be local legislation on the two electoral methods in 2012 and the elimination of the District Council appointment system, according to Chief Executive Donald Tsang. On the whole, we believe the 2012 reform is a small step that could pave the way, albeit slowly, for further reforms in the future. I n a key reversal of trend, Hong Kong's trade deficit came in much higher than the services surplus in Q210, causing the current account surplus to shrink sharply from US $4.1bn in Q110 to US $0.8bn. We expect weaker trade flows to weigh on the services surplus, causing the current account surplus to narrow from US $18.4bn (8.7% of GDP) in 2009 to US $9.3bn (4.1% of GDP) and US $8.7bn (3.7% of GDP) in 2010 and 2011 respectively. Meanwhile, we expect inflation to remain subdued on the back of a slower global economy, and we see headline CPI figures coming in at 2.0% by end-2011. I n our business environment ratings, Hong Kong retains its position in the upper echelons of the Asian and global rankings. Its score of 78.7 ranks it eighth of 167 countries worldwide and second in the region, behind only Singapore. The 'market orientation' category is Hong Kong's strong point, with a high level of economic openness and limited government intervention making for a world-beating score of 85.2. We see few risks to these favourable characteristics of the local business environment over the coming years as the government remains highly committed to these principles.
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