AMRO staff met with top officials from the Hong Kong Monetary Authority (HKMA) during its Annual Consultation Visit to Hong Kong from July 29 to August 2, 2019. From left to right: AMRO Lead Economist Dr. Chaipat Poonpatpibul, HKMA Chief Executive Designate Mr. Eddie Yue, AMRO Director Mr. Toshinori Doi, HKMA Chief Executive Mr. Norman Chan, AMRO Chief Economist Dr. Hoe Ee Khor, HKMA Executive Director Mr. Darryl Chan
SINGAPORE, August 8, 2019 – The Hong Kong economy has decelerated, with external headwinds impacting domestic demand. However, the economy and financial sector remain resilient, and the authorities have ample policy space to support growth and address structural challenges. This is according to the preliminary assessment by the ASEAN+3 Macroeconomic Research Office (AMRO) after its Annual Consultation Visit from July 29 to August 2, 2019.
The mission was led by AMRO Lead Economist Dr Chaipat Poonpatpibul, while Director Mr Toshinori Doi and Chief Economist Dr Hoe Ee Khor participated in the policy meetings. Discussions focused on Hong Kong’s growth prospects and financial stability. Issues covered include the impact of the U.S.-China trade tensions, property market developments and risks, effects of ongoing socio-political tensions, and the scope for fiscal policy measures to support the economy.
“The Hong Kong economy is expected to slow down to 1.3 percent in 2019 before increasing to 2.3 percent in 2020,” said Dr Poonpatpibul. “As the economy is highly open, the pullback in cross-border trade, dampened sentiments, and spillovers from external headwinds are affecting Hong Kong’s outlook. However, macro fundamentals are strong, and the authorities have ample fiscal space to support the economy.”
In the first half of 2019, the economy grew by 0.6 percent year on year, with a broad-based slowdown across exports, consumption, and investment. The labor market remains tight, although a few key sectors have shed jobs. Inflation has picked up recently due to supply-side factors, but remains contained.
Following a dip between the second half of 2018 and the first few months of 2019, property prices have resumed an uptrend before easing modestly in June, reflecting limited supply, strong underlying demand, and recovery of investor sentiment. Financial conditions have tightened, but remain accommodative.
The pullback of cross-border trade and the unresolved U.S.-China trade tensions remain key sources of uncertainty and risks across the region. Should the trade tensions escalate further, the impact on the regional economy including Hong Kong would likely be significant. On the domestic front, if the socio-political tensions were to prolong, they may also dampen sentiment.
Overall, Hong Kong is well equipped to cope with cyclical and structural challenges. Confidence in the Linked Exchange Rate System remains solid. The financial sector is sound, with strong capital and liquidity buffers serving as an anchor of resilience. Hong Kong’s healthy fiscal reserves provide ample room for policy measures to support enterprises and the workforce, promote social welfare, and sustain robust growth.
Hong Kong authorities have rightly strengthened efforts to spur technological development, upskill the labor force, and improve productivity. On the external front, the government has taken more measures to support exporters. These include: enhancing information flows, strengthening export credit insurance, exploring new export destinations, and improving market access by negotiating free trade agreements.
Hong Kong should continue to play an important role in facilitating Mainland China’s further reform and opening-up, in particular the liberalization of Mainland China’s financial sector. The Greater Bay Area project provides good opportunities for Hong Kong which can offer a range of professional services, trade-related services, as well as different types of cross-border banking and capital market financial solutions to other cities in the Greater Bay Area. In turn, Hong Kong will benefit from more growth opportunities, improvements in productivity, and over time, easing of supply-side constraints.
The recent introduction of virtual banking and continued development of fin-tech will help improve efficiency, and create possibilities for both large enterprises and SMEs to access a wider range of financial services. It will also boost the financial sector’s competitiveness. The mission team also noted recent initiatives to support the development of green finance in Hong Kong.
The mission team would like to express its deep appreciation to the Hong Kong authorities and other counterparts for their thoughtful comments, excellent arrangements, and warm hospitality. The consultation visit has further deepened AMRO’s understanding of Hong Kong’s macroeconomic and financial conditions, near-term outlook, longer-term prospects, and structural policy efforts.
 For brevity, “Hong Kong, China” is referred as “Hong Kong” in the text.
The ASEAN+3 Macroeconomic Research Office (AMRO) was established to contribute to securing the economic and financial stability of the ASEAN+3 region, which includes 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO fulfils its mandate by conducting macroeconomic surveillance, supporting the implementation of the regional financial arrangements, the Chiang Mai Initiative Multilateralization (CMIM), and providing technical assistance to the members.