Fitch Sees Strong Economic Growth For Hong Kong In 2004

by Mary Swire, Tax-News.com, Hong Kong

19 May 2004

Ratings agency Fitch on Monday revised its long-term outlook for Hong Kong to stable from negative, reflecting “sharply improved prospects” for the city’s economy and diminished risks to its currency board framework.

Citing a host of positive economic indicators such as increased consumer spending, declining unemployment, more optimism surrounding the property market and improved confidence in general, Fitch’s latest report predicts economic growth of 6% for 2004.

The agency also foresees an end to the city’s long deflationary cycle, with a return to positive inflation figures in the latter half of the year.

However, Fitch points out that Hong Kong’s narrow tax base will continue to exacerbate the government’s fiscal deficit, which will remain at 5% for the next two years.

This brings into focus once again proposals for a goods and services tax, although the Fitch analysis stated that the introduction of the levy is unlikely before 2008.

The ratings agency also warned that the prospect of future political turbulence as Beijing attempts to direct constitutional reform could seriously hamper the administration’s chances of carrying out fiscal policy, particularly tax and expenditure measures.

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