In the swing of things
A strong US dollar is sparking short-lived cyclical swings for the economy of Hong Kong. From a broader perspective, however, the economy is confronting structural issues that must be addressed to sustain long-term growth.
A Credit Suisse research report in March described the SAR’s economy as “unbalanced, troubled and hollowed-out” — as in heavily skewed to the financial services industry and mainland inbound tourism, which has an impact on sectors such as import/export, wholesale and retail, as well as the accommodation and food services industries.
The investment bank predicted that the local economy could only grow 1.6 percent this year, or the lower end of the government forecast, as the city would be heavily susceptible to any US interest rate hike and a structural decline in mainland tourist arrivals.
It would be difficult in the short term for Hong Kong to develop some forms of hightechnology research and development services, and high value-added manufacturing, Credit Suisse warned.
Besides a skewed economic structure, Hong Kong is contending with other structural economic issues as well.
According to Hang Seng Bank, the SAR posted a significant drop in trade growth after the 2008 financial crisis. Annual trade growth from 2011 to 2014 averaged just 3.5 percent compared with 9.2 percent during 2002-2008. And the slowdown has been more pronounced than can be accounted for by cyclical factors alone.
“The changing pattern in regional trade cannot be understood without adequate consideration of the issue of process control,” concerns over which have seen Asian economies begin to shift away “from a relatively higher degree of vertical specialization,” said Ryan Lam Chun-wang, chief economist at Hang Seng Bank.
“Given that a structural change in responsiveness of trade growth seems to be underway, exports growth in Asian economies will likely be weaker over the next few years compared with the historical standard,” Lam explained.
“This challenging external backdrop is a key element of our relatively cautious view on Hong Kong’s economic prospects for 2015.”
Ryan Lam Chun-wang, chief economist, Hang Seng Bank