Boston, MA -- (ReleaseWire) -- 02/18/2014 -- In 2014, we remain relatively less sanguine on the back of expectations of a slowing in China's economy and a correction within the property market that will adversely affect a substantial part of Hong Kong's economy. As a result, we are maintaining our below-consensus (3.5%) real GDP growth forecast of 3.0% in 2014.
Hong Kong's property market appears to be the nascent stages of a correction, which falls in line with our expectations. While we are of the view that this is just the start of the correction and that further price declines are likely to be in order, we expect the correction to remain moderate. We highlight that the shifting of mainland investor interest out of Hong Kong, if sustained, represents a salient downside risks. However, we point out that continuing supply-side woes carry upside risks to the expected correction.
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Hong Kong has been witnessing increasing incidences of costoverruns in the city's massive public infrastructure projects in recent years. This is due in no small part to the government's penchant for utilising public infrastructure spending to bolster the economy in times of a slowdown. The glut of projects in recent years has led to a labour shortage which has in turn driven up wage costs. While the recent spate of cost blowouts and a slowing economy have led to concerns regarding the city's fiscal profile, we believe that the government's fiscal prudence and the huge fiscal reserves that it has built up over the years will help it to cushion any deterioration in its fiscal position.
Hong Kong's political environment appears to be becoming increasingly divisive and we stress that if Beijing is seen to be interfering with the running of the city, Hong Kong may gradually lose its preeminence as a global financial centre.
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