Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Impacts of the Financial Tsunami on the Hong Kong Economy Government Economist 3 November 2008 1 Economy already slowing before global financial crisis Year-on-year rate of change 15% 10% GDP in real terms 5% 0% -5% -10% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 2 Global financial crisis adding significant downside risks to HK economy • Global financial crisis mutated into synchronised downturn • Financial markets under exceptional stress credit conditions unusually tight • Key risk facing advanced economies is downward spiral between asset prices and real economy, leading to prolonged slump • Increasing impact on Asia in coming quarters 3 Transmission mechanisms – how it impacts on HK • • • • • Trade Asset markets Credit market tightness impacting on SMEs Consumption and investment Unemployment, with feedback on domestic sector 4 Impact on trade 5 Exports slackening fast as global downturn increasingly set in Year-on-year rate of change Year-on-year rate of change 25% 20% 8% World GDP* (RHS) 7% 15% 6% 10% 5% 5% Hong Kong's total exports of goods (LHS) 4% 0% 3% -5% 2% -10% 1% -15% 0% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 * The world GDP being plotted here is weighted by Hong Kong's total exports of goods. 6 Hong Kong’s total exports of goods by market (year-on-year rate of change in real terms) 2007 2008 Q1 US -2.5% -5.8% -7.4% -6.9% EU 3.8% 4.6% 1.6% 2.3% Asia excl. Japan and Mainland China 10.4% 19.0% 10.7% 2.4% Mainland China 12.9% 12.2% 8.6% 3.9% Japan -0.8% -3.2% -4.1% -1.3% Overall 8.3% 9.1% 5.4% 2.2% Note : (*) Crude estimates. 2008 Q2 2008 Q3* 7 World GDP growth in current and previous downturns 1998 AFC 2001 global downturn 2009 global downturn# 2.5% 2.2% 3.0% US 4.2% 0.8% 0.1% EU 2.9% 2.0% 0.6% Japan -2.0% 0.2% 0.5% Mainland 7.8% 8.3% 9.3% Singapore -1.4% -2.4% 3.5% South Korea -6.9% 3.8% 3.5% Thailand -10.5% 2.2% 4.5% 4.5% -2.2% 2.5% -13.1% 3.6% 5.5% World GDP Of which: Taiwan Indonesia Note: (#) IMF’s Forecast in the World Economic Outlook. 8 Current US$ strength will not bode well for HK’s exports Year-on-year rate of change Year-on-year rate of change 25% 20% 15% 10% Hong Kong's total exports of goods (LHS) 8% 6% 10% 4% 5% 2% 0% 0% -5% Exchange rate factor, with a 2-quarter lag* (RHS) -2% -4% -10% -15% -6% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 * An increase in the exchange rate factor refers to a depreciation of the Hong Kong dollar against a basket of other major currencies in real terms. 9 Guangdong’s export growth slower than the national total Total exports (year-on-year % change in US$) 45 40 35 30 25 20 15 Guangdong Mainland 10 5 0 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 10 Impact on asset markets and domestic demand 11 Stock market saw a significant correction Index Index 15000 35000 14000 30000 13000 Dow Jone's Industrial Average (LHS) Hang Seng Index (RHS) 12000 25000 11000 10000 20000 9000 15000 8000 7000 10000 6000 5000 Jan 02 5000 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 12 Property market also down across the board Index 180 160 Residential Price Index 140 120 100 Residential Rental Index 80 60 40 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 13 Property market transactions down to level close to 2003 average HK$ Bn 100 90 80 70 Residential property transaction (value) 60 50 40 30 20 10 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 14 Asset price corrections in the current and previous downturns Hang Seng Index (trough/peak) Residential flat prices 1998 2001 2008 so far -60.1% 7 Aug 97: 16 673 13 Aug 98: 6 660 -51.2% 28 Mar 00: 18 302 21 Sep 01: 8 934 -65.2% 30 Oct 07: 31 638 27 Oct 08: 11 016 -32.5% Dec 98/Dec 97 -9.8% Dec 01/Dec 00 2.3% Sep 08/Dec 07 15 Negative wealth effect can be profound Year-on-year rate of change Year-on-year rate of change 12% 120% 10% 100% 8% 80% 6% 60% 4% 40% Equity wealth (RHS) 2% 0% 0% -2% -4% -6% 20% -20% Private consumption expenditure in real terms (LHS) -8% -40% -60% -80% -10% -100% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 16 Slowdown in income will also impact on consumption Year-on-year rate of change 15% 10% Real disposable income 5% 0% -5% Private consumption expenditure -10% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 17 Impact on Businesses 18 Bankruptcy cases still low, but likely to rise Number of cases 3500 3000 2500 Bankruptcy Orders 2000 1500 1000 500 0 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 19 Business confidence worsened markedly (Results of latest Quarterly Business Tendency Survey) Net balance (% point) 40 35 30 25 Expected change in business situation 20 15 10 5 0 -5 -10 -15 -20 Q1 2006 Q2 2006 Note : (*) Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Net balance indicates the direction of expected change in business situation in next quarter. It refers to the difference in percentage points between the proprotion of establishments choosing "better" over that choosing "worse". A positive sign indicates a likely upward trend while a negative sign, a likely downward trend. 20 Results of latest Business Tendency Survey (Large firms) Views on expected changes in business situation in the following quarter (Net balance) Manufacturing Construction Wholesale and Retail Import and Export Trade Restaurants and Hotels Transport and Related Services Communications Real Estate Business Services Banks, Financing and Insurance All Sectors Above Source: 2008Q1 over 2007Q4 +1 +8 +17 +21 +34 +29 +28 +39 +27 +42 2008 Q2 over 2008Q1 +40 +16 +17 +32 +12 +30 +23 +15 +32 +20 2008Q3 over 2008Q2 +30 +15 +20 +20 +8 +20 +18 +10 +15 +14 2008Q4 over 2008Q3 -19 -15 -20 -9 -32 -20 +7 +2 -9 -26 +26 +26 +18 -15 Quarterly Business Tendency Survey, C&SD 21 Impact on SMEs also severe Figures on SMEs: (As in June 2008) No. of SMEs Employment (‘000) I/E trade 91364 418 Wholesale & retail trades, restaurants and hotels 64349 293 Financing, insurance, real estate & business services 54896 209 Community, social & personal services 31097 139 9112 57 14873 102 265690 (about 98% of all business units) 1219 (about 1/3 of total employment) Transport, storage & communications Manufacturing and others Total 22 Business investment set to slow Year-on-year % change in real terms 40 30 Overall Investment Mechinery and Equipment 20 10 0 -10 Building and Construction -20 -30 -40 Q1 97 Q3 97 Q1 98 Q3 98 Q1 99 Q3 99 Q1 00 Q3 00 Q1 01 Q3 01 Q1 02 Q3 02 Q1 03 Q3 03 Q1 04 Q3 04 Q1 05 Q3 05 Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 23 Impact on labour market 24 Employment conditions to worsen as economy slows Year-on-year % change 14 12 GDP in real terms 10 8 6 4 2 0 -2 Employment -4 -6 -8 -10 Q1 97 Q3 97 Q1 98 Q3 98 Q1 99 Q3 99 Q1 00 Q3 00 Q1 01 Q3 01 Q1 02 Q3 02 Q1 03 Q3 03 Q1 04 Q3 04 Q1 05 Q3 05 Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08 25 Unemployment expected to rise further % 9 8 7 6 5 4 Unemployment rate 3 2 1 0 Q1 97 Q3 97 Q1 98 Q3 98 Q1 99 Q3 99 Q1 00 Q3 00 Q1 01 Q3 01 Q1 02 Q3 02 Q1 03 Q3 03 Q1 04 Q3 04 Q1 05 Q3 05 Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08 26 Employment impacts in previous downturns 1998 AFC 2001 global downturn 2003 SARS GDP growth in the economy’s trough -8.1% (98 Q3) -1.7% (01 Q4) -0.9% (03 Q2) Employment (year-on-year % change) -3.3% (98 Q4) -2.1% (02 Q2) -1.8% (03 Q3) Unemployment rate 5.9% (98 Q4) 7.5% (01 Q2) 8.5% (03 Q2) Swing in underlying CPI inflation from preceding year -2.7% (1998 over 1997) -0.8% (2002 over 2001) -1.1% (2003 over 2002) 27 Sectors expected to be harder hit(1) • Financial services • Trading and logistics • Tourism and consumption-related • Real estate and construction 28 Sectors expected to be harder hit(2) Direct contribution to GDP in 2006 (%) Employment in 2007 (‘000) Share in total employment (%) Financial services 15.9 193 5.5 Trading and logistics Trading Logistics 27.4 22.4 5.0 844 634 210* 24.2 18.2 6.0* Tourism & consumptionrelated sectors (Retail; restaurants & hotels) 5.5 549 15.7 Real estate & construction 7.1 386 11.1 (*) 2006 position. 29 Wide range of uncertainties ahead 30 HK’s economic slowdown will be more severe if: • Global financial market meltdown • Global downturn degenerated into prolonged and severe slump; and Asia moving into recession • US$ continues to strengthen • China's exports slow markedly • Property market suffers continued fall-off 31 Factors that may cushion HK against a severe slowdown : • Global concerted efforts to prevent systemic crisis from spreading further • Global financial markets stabilise • CPG’s support for Hong Kong: Premier Wen’s recent remarks • China maintains reasonably strong momentum, especially in trade • Interest rates hold stable or move down • US$ to reverse trend • Infrastructure projects can speed up 32 Short-term economic outlook • GDP growth likely to slow down further in Q4; earlier forecast of 4-5% for 2008 difficult to attain • Economic conditions will worsen further in early 2009; prospect of turnaround in H2 2009 still highly uncertain • Unemployment rate looks set to rise further, more visibly in 2009 • Inflation likely to ease as pressures from local and external sources recede significantly 33 Overall • Global financial crisis will inflict major shocks on HK economy via various channels • HK's strong fundamentals mean speedy recovery once global situation turns for better • But short term outlook inevitably much dimmer; risk of recession in 2009 now higher • Remain alert to risk of potentially more damaging impact from global crisis • Need to get prepared for difficult period ahead 34 END 35