Hong Kong's Economic Forecast

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As Hong Kong is a small economy that is highly open to trade, it is also highly susceptible to global economic shocks. This is most recently evidenced by the GDP slowdown to 1.7% driven by negative trade developments and the inevitable drop in exports due to the global economic crisis. However, despite the weak global economy, Hong Kong's growth has rebounded due to the resilience of domestic demand along with low unemployment, most notably in low-skilled sectors. Additionally, beneficial fiscal policies providing counter-cyclical support to the economy have bolstered Hong Kong's economic health. Through such actions as waiving rates for properties, reducing public housing rents, increasing capital spending, and tax relief, Hong Kong's…show more content…
In doing so, countervailing macro-prudential measures should also continue to be employed to ensure the integrity of the financial system. Under similar duress, there exists the risk of a severe dislocation of global financial markets; due to the failure of a parent bank for example. Such a disruption would lead an economic environment of increased risk aversion and stress, ultimately followed by bank deleveraging. In this environment the price of risk assets, such as equities and property, would decline inciting a further decrease in confidence and engaging in a spiral of negative feedback. As conditions worsened, the decrease in confidence would thus cause negative wealth effects and drop in both consumer and business spending. In order to prevent the occurrence of such adverse circumstances, officials should focus of the provision of liquidity through preexisting facilities. Despite these risks to Hong Kong's future, a series integral factors inherent to its Hong Kong's economic environment should allow them to overcome any potential duress. At the forefront is Hong Kong's reliably resilient economy that has been weathering the slew of economic disruptions in recent years. While demand for exports has been dragging down their growth, they will continue to be bolstered by fiscal policies, low unemployment, along with a consistently strong
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