Hong Kong SAR, China flag Hong Kong SAR, China: Economic and Political Overview

The economic context of Hong Kong SAR, China

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

As the tenth largest trading power and the fifth largest financial centre in the world, Hong Kong is often cited as a model of liberal economics. However, the economy has been experiencing a slowdown in recent years, with a GDP growth of -6.1% in 2020, against -1.2% in 2019. This slowdown results largely from the impact of the COVID-19 pandemic, but also from the cooling Chinese economy, trade tensions with the United States, decreased FDI, and tighter credit conditions forcing the Hong Kong Monetary Authority (HKMA) to imitate rate increases. According to Financial Times, Hong Kong’s economy has also suffered from the many protests in 2019 and 2020. Positive GDP growth came back in 2021 with + 6.4% (IMF, October 2021). According to the latest IMF forecasts growth is expected to reach +3.5% in 2022 and remain at 3.1% in 2023, subject to the post-pandemic global economic recovery.

Due to the impact of the global economic context of 2020, the Hong Kong Government closed the year 2020 with a -10.6% budget deficit from -3.3% in 2019. It was back to -3.9% in 2021 (Hong-Komg Government, 2022). The protests and the export pressure from the US-China trade war also affect the government balance. Hong Kong continues to have solid public finances despite a public debt increasing from 1% of GDP in 2020 to 2.1% in 2021. According to the IMF, the inflation rate dropped from 2.9% in 2019 to 0.3% in 2020 before reaching 1.9% in 2021. Inflation rate should increase to 2.1% in 2022 and 2.3% in 2023 according to the latest World Economic Outlook of the IMF (October 2021). Credit expansion and a tight housing supply have caused Hong Kong property prices to rise rapidly in recent years. Lower and middle-income segments of the population are increasingly unable to afford adequate housing. Tourism is largely affected by the ongoing protests and pandemic and tourism from China (75% of total visitors) is also expected to remain weak because of slower economic growth in mainland China and the depreciation of the RMB in relation to the HKD.

In 2022, the country’s most immediate challenge remains related to the economic, social and public health impacts of the COVID-19 pandemic.The unemployment rate increased from 2.9% in 2019 to 5.8% in 2020 and 5.6% in 2021. The IMF expects a reduction in the unemployment rate, with 4.6% in 2022 and 4.2% in 2023. Challenges also include pro-China vs anti-China sentiment, rising income inequality, and lack of economic innovation (Coface, 2022).

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 363.02346.58369.72389.98409.95
GDP (Constant Prices, Annual % Change) -1.7-6.16.43.53.1
GDP per Capita (USD) 48,26846,657e49,48551,89554,238
General Government Balance (in % of GDP) 0.3-5.8e-2.9-1.5-1.3
General Government Gross Debt (in % of GDP) 0.31.02.13.24.1
Inflation Rate (%) 2.90.31.61.92.1
Unemployment Rate (% of the Labour Force) 2.95.8e5.64.64.2
Current Account (billions USD) 21.3622.6622.2621.9120.67
Current Account (in % of GDP) 5.96.56.05.65.0

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Hong Kong relies heavily on financial services, production of electronics, and tourism as its main industries. The agricultural sector is almost non-existent since Hong Kong possesses no natural resources and is completely reliant on raw material and energy imports. The contribution of agriculture to the economy was practically null at 0.1% of GDP in 2021 and 0.2% of the workforce employed (World Bank, 2022). Hi-tech vertical farming is being adopted as an alternative to traditional farming (South China Morning Post). Concerns over food safety from Chinese products, have also been a factor in the boom of local farming initiatives (EcoWatch).

The manufacturing industry represents a larger, albeit still small share of GDP (6.3% in 2021) and employment with 11.5% of the workforce (World Bank, 2022). Main industries include electronics, electrical appliances, informatics and telecommunications. In 2021, the industrial sector stagnated.

The tertiary sector is the heart of Hong Kong's economy. Financial services, trading and logistics, tourism, import/export, air transport, professional and producer services are traditional key industries in Hong Kong. The services sector contributes around 89% of GDP and employed 88.3% of the workforce in 2021 (World Bank, 2022). Hong Kong acts as a service centre for Asian companies, particularly for those trading with China. According to figures published by the Commercial Register, there are over 900 thousand companies registered in Hong Kong.

The COVID-19 pandemic has had a powerful impact on the global economy since 2020. Nevertheless, the global recovery continues, even if the momentum has weakened towards the end of 2021 and uncertainty has increased as the pandemic resurged, leaving lasting imprints on medium-term performance. The surge in global inflation has investors fretting about future growth, but many economists say price surges will subside, making way for 4.7% global GDP growth in 2022 (International Monetary Fund - IMF, 2022 & Morgan Stanley, 2021). The impact of the pandemic appears to have affected both sides of most sectors and markets in Hong Kong for the second year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for industry and service sectors.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 0.2 11.1 88.8
Value Added (in % of GDP) 0.1 6.3 90.0
Value Added (Annual % Change) 4.9 n/a -6.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
89.6/100
Position:
Free
World Rank:
1/178
Regional Rank:
1/42

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
8.20/10
World Rank:
3/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.
 

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Sources of General Economic Information

Ministries
Business and Trade (HK government information)
HK Trade Development Council
Commerce and Economic Development Bureau
Financial Services and the Treasury Bureau
Agriculture, Fisheries and Conservation Department
Trade and Industry Department
Statistical Office
Census and Statistics Department
Central Bank
HK Monetary Authority(HKMA)
Stock Exchange
Hong Kong Stock Exchange (SEHK)
Economic Portals

 

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Latest Update: June 2022