[20081118]Developing Economies: Hong Kong - "The Hardest Time since the recording, technical, quarters, contract, expect

yangho

Key points:
◆       Hong Kong has fallen into a technical recession, with its real GDP recording two consecutive quarters of QoQ decline. As headwinds from the global financial market turmoil have increasingly acted as a drag on the local and global economies, we revise down our 2008 GDP growth forecast to 3.2% and project GDP to contract by 0.8% in 2009, the first full-year contraction since 1998. We expect the economy will start to pick up in 2010, but economic growth is likely to be well below its long-term trend.
◆       Earlier concerns about rising inflation are expected to dissipate next year due to weakening domestic demand and declining commodity prices. Thus, we project underlying inflation to ease distinctly, by around 3ppt, to 2.6% in 2009. Moreover, we forecast an increase in the unemployment rate by 2ppt to an average 5.5% in 2009, as a slowdown in economic activity will negatively impact the labor market.
◆       Risks to Hong Kong’s economic prospects continue to arise mainly from uncertainties concerning the outlook for global financial markets and the macroeconomy, particularly the economic situation in mainland China, and the depth and duration of recession in the US and the EU.
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