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Impacts of the Financial Tsunami on the Hong Kong Economy Government Economist 3 November 2008

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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
  • Trade
  • Asset markets
  • Credit market tightness impacting on SMEs
  • Consumption and investment
  • Unemployment, with feedback on domestic sector
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(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

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

sectors expected to be harder hit 1
Sectors expected to be harder hit(1)
  • Financial services
  • Trading and logistics
  • Tourism and consumption-related
  • Real estate and construction
hk s economic slowdown will be more severe if
HK’s economic slowdown will be more severe if:
  • 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 :
  • 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
  • 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
  • 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
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