Statement by the IMF Staff Representative on November 23, 2009

This 2009 Article IV Consultation highlights that Hong Kong Special Administrative Region’s economy was severely affected by the global financial crisis. The recovery is now under way, fueled by growth on the Mainland, supportive policies, and accommodative monetary conditions imported from the United States. Despite the steepness of the downturn in early 2009, job losses have been relatively modest and unemployment now stands at 5.2 percent. Executive Directors have welcomed the robustness of the Hong Kong banking system, the result of banks’ careful risk management, and the authorities’ vigilant, prudent regulation and enforcement.

Abstract

This 2009 Article IV Consultation highlights that Hong Kong Special Administrative Region’s economy was severely affected by the global financial crisis. The recovery is now under way, fueled by growth on the Mainland, supportive policies, and accommodative monetary conditions imported from the United States. Despite the steepness of the downturn in early 2009, job losses have been relatively modest and unemployment now stands at 5.2 percent. Executive Directors have welcomed the robustness of the Hong Kong banking system, the result of banks’ careful risk management, and the authorities’ vigilant, prudent regulation and enforcement.

The information below, which has become available following the issuance of the staff report, does not alter the thrust of the staff appraisal.

1. GDP data for the third quarter was released on November 13. The data was weaker than staff had anticipated and was particularly hard hit by a fall in net exports of goods (which detracted 10 percentage points from the seasonally adjusted quarter-on-quarter growth rate). Domestic consumption and investment, however, strengthened during the quarter, offsetting some of the drag from external demand. In addition, there was a significant build-up of inventories toward the end of the quarter.

2. The weaker-than-expected GDP outturn indicates that the staff’s forecast of a 2 percent contraction for this year may prove optimistic. However, this data does underscore that the downside risks to growth from external demand are significant and a supportive fiscal stance should be maintained in the FY 2010/11 Budget.

Hong Kong SAR: Contributions to GDP Growth

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Sources: CEIC Database; and staff estimates.

3. In August to October, the seasonally adjusted unemployment rate fell to 5.2 percent (from 5.3 percent in July to September). However, it is worth noting that, on a non-seasonally adjusted basis, the decline in the number of unemployed came from a fall in labor force participation rather than an expansion of employment.

4. The Hong Kong Monetary Authority (HKMA) has continued to intervene to purchase foreign currency in accordance with the design of the Linked Exchange Rate System. From November 1 to 19 the HKMA purchased US$11.9 billion in foreign currency as the Hong Kong dollar hit the strong side of the convertibility band.

People's Republic of China-Hong Kong Special Administrative Region: 2009 Article IV Consultation-Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion
Author: International Monetary Fund