SINGAPORE, January 21, 2019 – Hong Kong’s economy is projected to grow strongly at 3.8 percent in 2018 and moderate to 2.7 percent in 2019 mainly due to weakening external demand and heightened external risks, according to the 2018 Annual Consultation Report on Hong Kong published by the ASEAN+3 Macroeconomic Research Office (AMRO) today. The report was prepared based on AMRO’s Annual Consultation Visit to the economy from August 06 to 10, 2018 and data available up to October 30, 2018.
Despite strong growth in the first three quarters of 2018, the Hong Kong economy is now exposed to significant downside risks from external factors, which are shared globally, including an escalation of the U.S.-China trade conflict, a faster-than-expected pace of the Fed rate hike, and a sharper-than-expected growth slowdown in China. Domestic risks mainly stem from the property market, which had been exuberant due to limited supply and low interest rates, albeit with signs of moderation since the third quarter of 2018. A sharp correction in the residential property market, if happens, could weaken private consumption and growth. Inflation has edged up but will remain at a moderate level.
Restraining Hong Kong’s property boom has continued to be a key challenge. In June 2018, six new initiatives were announced to increase the supply of subsidized housing units and enhance affordability, and to encourage more timely supply of first-hand private flats. In October 2018, the government also announced plans to increase housing and land supply. It is critical the government maintains the existing macro-prudential and demand-side management measures and continues to take decisive actions to increase the supply of affordable housing in order to meet strong public demand for housing.
The government has fiscal space to support growth if the economy is significantly affected by worsening external conditions. Further fiscal measures can be deployed to support the economy through higher public investment and better financial support for lower-income groups. Efforts in employing fiscal resources to enhance growth potential and to cope with an aging population while ensuring the health of public finance are commendable. Strong fiscal reserves will provide a necessary buffer during cyclical downturns and help the economy cope with population aging.
AMRO commends initiatives by the Hong Kong Monetary Authority and other government agencies in facilitating the development of fintech and smart banking. Such coordinated efforts demonstrate a strong intention of the government to enhance the efficiency of the financial sector and boost financial inclusion through new digital technology. Further efforts on this front are encouraged to bolster the role of Hong Kong as a major international financial center.
Hong Kong authorities have launched several initiatives that reflects its pivotal role in facilitating China’s further opening-up process, such as setting up the Infrastructure Financing Facilitation Office as a platform to facilitate infrastructure investments and their financing by working with a cluster of key stakeholders. Hong Kong can further contribute to the internationalization of the Renminbi and liberalization of the Chinese financial markets by leveraging on its financial and professional expertise.
About AMRO and AMRO’s Annual Consultation Report:
The ASEAN+3 Macroeconomic Research Office (AMRO) was established to contribute to securing the economic and financial stability of the ASEAN+3 region, which include 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support the implementation of the regional financial arrangements, the Chiang Mai Initiative Multilateralisation (CMIM), and provide technical assistance to the members.
The Annual Consultation Report was prepared in fulfilment of AMRO’s mandate. AMRO is committed to monitoring, analyzing and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and provides policy recommendations to mitigate such risks.