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Update on the Hong Kong Economy for The Task Force on Economic Challenges Government Economist

Update on the Hong Kong Economy for The Task Force on Economic Challenges Government Economist 8 December 2008. Global/local developments since last meeting. Global financial market strains eased somewhat; risks of meltdown receded for the time being Local interest rates also down

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Update on the Hong Kong Economy for The Task Force on Economic Challenges Government Economist

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  1. Update on the Hong Kong Economy for The Task Force on Economic Challenges Government Economist 8 December 2008

  2. Global/local developments since last meeting • Global financial market strains eased somewhat; risks of meltdown receded for the time being • Local interest rates also down • But global credit market still not functioning...

  3. Concern about global financial meltdown eased, but credit markets still tight

  4. Local interbank rates down…but banks still cautious in lending

  5. Global synchronised downturn increasingly apparent…

  6. … leading to a further mark-down in global economic growth forecasts

  7. US economy in a dire state

  8. Likewise for EU and Japan

  9. Asia also feeling the pinch

  10. HK economy also hard hit…

  11. GDP growth slowed markedly in Q3 2008

  12. Impact on the four harder-hit sectors

  13. Financial services

  14. Banking sector under pressure in a number of ways: • Income : Contraction in loan balance; Non-interest income withering amid falling demand for investment products • Loss provisions and charge-offs : Provision for losses on investments; Non-performing loan; Falling property prices leading to more negative equity cases • Operational pressure : Liquidity / capital demand from foreign / Mainland branches; Lehman-related issue; Structural changes leading to higher compliance and operating costs

  15. Financial sector activities already slowing markedly since early 2008

  16. Partly due to sharp declines in IPO activity and stock market turnover ……

  17. …… but loans also began to fall

  18. Financial services sector: unemployment/vacancy* * Private sector vacancies posted by the Labour Department.

  19. Trading and logistics

  20. Export outlook is grim 2003 SARS Current global crisis 2001 global downturn 1998 AFC

  21. Trading and logistics: unemployment/vacancy* * Private sector vacancies posted by the Labour Department.

  22. Tourism and consumption-related sector

  23. Tourist number remains on a decline; Retail sales down in October 1998 AFC Current global crisis 2001 global downturn Current global crisis 2003 SARS 2001 global downturn 2003 SARS 1998 AFC

  24. Tourism and consumption-related sector: unemployment/vacancy* * Private sector vacancies posted by the Labour Department.

  25. Real estate and construction sector

  26. Property market down further; Transactions fell back to 2003 average 1998 AFC 2001 global downturn Current global crisis 2003 SARS

  27. Construction sector output remainson a downtrend 2001 global downturn 2003 SARS 1998 AFC Current global crisis

  28. Real estate and construction sector: unemployment/vacancy* * Private sector vacancies posted by the Labour Department.

  29. Feedback from SMEs

  30. Impact on business receipts

  31. Impact on employment

  32. Impact on access to credit

  33. Outlook for HK

  34. Latest 2009 forecasts vary widely

  35. Our latest assessment • Global economy in a dire state; timing of recovery still highly uncertain • HK’s GDP growth likely to turn negative in 2008 Q4 and 2009 H1 • Recession in 2009 seems inevitable given the recession in advanced economies and ensuing drag on Asia • China still a positive factor for HK, esp with series of measures to boost domestic demand and forestall severe export slowdown

  36. Measures to mitigate the impact : • Ensure banking sector liquidity and monetary stability • SME loan guarantee schemes • Job creation initiatives • Increase minor construction projects and speed up infrastructure projects where possible • CPG’s support for HKSARG

  37. End

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