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Impacts of the Financial Tsunami on the Hong Kong Economy Government Economist 3 November 2008. Economy already slowing before global financial crisis. Global financial crisis adding significant downside risks to HK economy. Global financial crisis mutated into synchronised downturn

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Impacts of the Financial Tsunami

on the Hong Kong Economy

Government Economist

3 November 2008



Global financial crisis adding significant downside risks to hk economy
Global financial crisis adding significant downside risks to HK economy

  • Global financial crisis mutated into synchronised downturn

  • Financial markets under exceptional stress credit conditions unusually tight

  • Key risk facing advanced economies is downward spiral between asset prices and real economy, leading to prolonged slump

  • Increasing impact on Asia in coming quarters


Transmission mechanisms how it impacts on hk
Transmission mechanisms – how it impacts on HK HK economy

  • Trade

  • Asset markets

  • Credit market tightness impacting on SMEs

  • Consumption and investment

  • Unemployment, with feedback on domestic sector


Impact on trade

Impact on trade HK economy



Hong kong s total exports of goods by market year on year rate of change in real terms
Hong Kong’s total exports of goods by market in(year-on-year rate of change in real terms)

Note : (*) Crude estimates.


World gdp growth in current and previous downturns
World GDP growth in current and previous downturns in

Note: (#) IMF’s Forecast in the World Economic Outlook.












Bankruptcy cases still low but likely to rise
Bankruptcy cases still low, downturnsbut likely to rise


B usiness confidence worsened markedly results of latest quarterly business tendency survey
B downturnsusiness confidence worsened markedly(Results of latest Quarterly Business Tendency Survey)



Impact on smes also severe figures on smes
Impact on SMEs also severe downturnsFigures on SMEs:







Sectors expected to be harder hit 1
Sectors expected to be harder hit(1) downturns

  • Financial services

  • Trading and logistics

  • Tourism and consumption-related

  • Real estate and construction


Sectors expected to be harder hit 2
Sectors expected to be harder hit(2) downturns

(*) 2006 position.



Hk s economic slowdown will be more severe if
HK’s economic slowdown will be more severe if: downturns

  • Global financial market meltdown

  • Global downturn degenerated into prolonged and severe slump; and Asia moving into recession

  • US$ continues to strengthen

  • China's exports slow markedly

  • Property market suffers continued fall-off


Factors that may cushion hk against a severe slowdown
Factors that may cushion HK against a severe slowdown downturns :

  • Global concerted efforts to prevent systemic crisis from spreading further

  • Global financial markets stabilise

  • CPG’s support for Hong Kong: Premier Wen’s recent remarks

  • China maintains reasonably strong momentum, especially in trade

  • Interest rates hold stable or move down

  • US$ to reverse trend

  • Infrastructure projects can speed up


Short term economic outlook
Short-term economic outlook downturns

  • GDP growth likely to slow down further in Q4; earlier forecast of 4-5% for 2008 difficult to attain

  • Economic conditions will worsen further in early 2009; prospect of turnaround in H2 2009 still highly uncertain

  • Unemployment rate looks set to rise further, more visibly in 2009

  • Inflation likely to ease as pressures from local and external sources recede significantly


Overall
Overall downturns

  • Global financial crisis will inflict major shocks on HK economy via various channels

  • HK's strong fundamentals mean speedy recovery once global situation turns for better

  • But short term outlook inevitably much dimmer; risk of recession in 2009 now higher

  • Remain alert to risk of potentially more damaging impact from global crisis

  • Need to get prepared for difficult period ahead


END downturns


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