SINGAPORE, June 21, 2017 – The ASEAN+3 Macroeconomic Research Office (AMRO) today publishes its 2016 Annual Consultation Report on Hong Kong, China, which was prepared on the basis of its Annual Consultation Visit to the economy in September 2016 and data availability as of December 16, 2016. The following statement is drafted based mainly on information in the 2016 Report and takes into account recent economic and financial developments, where appropriate.
Hong Kong’s economy has regained its growth momentum since second half of 2016. Unemployment rate has remained at low level and inflationary pressure is moderate. The banking system in Hong Kong remains resilient with a high capital buffer and fiscal space remains ample. In view of the downside risks to the economy from the external environment and domestic property markets, current demand-side management measures and macro-prudential measures that have maintained overall banking system stability should be maintained and more fiscal measures can be deployed to support growth.
According to the report, GDP growth in Hong Kong started to pick up in second half of 2016 due to improved domestic conditions. The GDP growth rate in 2017 is expected to further strengthen as the global economy and trade activities recover and domestic private consumption firms up.
Headline inflation in 2016 was lower than in the previous year owing to contained food price inflation and weakening housing rents. In 2017, inflationary pressure is expected to remain subdued due to an appreciating Hong Kong Dollar (HKD) in nominal effective terms and subdued housing rents.
The banking system in Hong Kong remains sound and well-capitalized. Banks in Hong Kong maintain a prudent lending stance with a high capital adequacy ratio at 19.2 percent at the end of December 2016.
The economy is exposed to downside risks mainly from the external environment and domestic property markets. On the external front, while a stronger U.S. growth due to expansionary fiscal policy would have positive spillovers, policy uncertainties of the U.S. administration could have adverse effects on Hong Kong through trade and financial channels. On the property market front, the sustainability of the recent recovery is uncertain as it seems to be supported by likely short-lived factors, including a low interest rate environment.
The demand-side management measures and macro-prudential measures introduced since 2009 have successfully contained speculative transactions and maintained overall banking system soundness. These measures should be maintained to curtail excessive borrowing by households. Nonetheless, policy adjustments will be warranted should there be major corrections in the property market.
Fiscal conditions are expected to remain sound. As fiscal space remains ample, there is room to deploy more fiscal measures to support growth in the face of a challenging external outlook.
 For brevity, “Hong Kong, China” is referred as “Hong Kong” in the text from hereon.