This paper analyses the economy of Hong Kong mainly through the perspective of GDP, and then analyses its fiscal and monetary policies which are implemented by Hong Kong government and its Monetary Authority.
Hong Kong is one of the world’s leading financial centers and it is an efficiency service-oriented free market economy. Hong Kong’s economic freedom score is 90.1 on a 100-point scale, making it the top-rated economy in the Index for the 20th consecutive year (Heritage.org, 2014). Hong Kong’s economy is normally characterized by its low taxation, light regulation and well established international trading environment.
Current Position of Economy
Diagram 1. The Hong Kong economy picked up to moderate growth in 2013
As the diagram above reveals, in the past 5 years, Hong Kong’s economic performance experienced two major declines. The worse one was during the Subprime Mortgage Crisis started from 2007, Hong Kong’s rate of change in real terms decreased significantly compared to its growth trend in the previous years. However, compared to the other countries, such as the US and UK, it was less cyclical affected and the recovery in Hong Kong economy had a better performance. Another decline occurred in the year of 2012, after few years of the recession, and the reasons of that down-slope will be provided below.
According to Diagram 1, Hong Kong’s economic performance has kept a gradual growth in the year of 2013, with real GDP expanding moderately by 2.9%, up from 1.5% in 2012, keeping the labour market in a state of full employment (Hong Kong Economy Report, 2014). As a whole, in year 2013 both the external and internal sector of Hong Kong performed better than the year of 2012. With regards to the overseas sector, total exports are compiled under the GDP accounting framework grew by 6.7% in real terms, after the slight growth of 1.8% in 2012 (Hong Kong Economy Report, 2014). Firms which are held by the domestic sector provided a dumping towards the external headwinds that exist in the previous years (GOVHK, 2014). In addition, with comparing other economic markets, such as asset markets, labour markets, etc. to 2012, the whole performance was improved and it went along with a positive trend.
Current GDP Analysis
The following table is the GDP figures taken from the Hong Kong Census and Statistics Department and IMF.
Quarter 1Q2013 2Q2013 3Q2013 4Q2013 Whole Year
GDP% 2.8% 3.3% 2.9% 3.0% 2.9%
Diagram 2. Gross Domestic Product (Quarterly)
Diagram 3. Hong Kong Main Economic Indicator
Diagram 4. Hong Kong Private Consumption Expenditure
Diagram 5. Hong Kong GDP GAP
According to the Hong Kong's Financial Secretary John Tsang’s budget speech on 26th Feb 2014, the 2.9% economic growth in 2013 is a "marked improvement" over 1.5% in 2012. (Hong Kong Budget Speech 2013-2014)
Although Hong Kong achieved a growth in GDP compared to 2012, the economy of Hong Kong still had a negative GDP gap in 2013. It can also be defined as a deflationary...