Standard and Poor’s maintains confidence in Hong Kong economic outlook

HONG KONG - Hong Kong's economic outlook is stable, says ratings agency Standard and Poor's, reflecting its expectation that current fiscal deterioration is not structural, and that political developments between mainland China and Hong Kong--as well as between the U.S. and Hong Kong--will not materially jeopardise Hong Kong's strong economic profile.

"We are affirming our 'AA+/A-1+' issuer credit ratings on Hong Kong," S&P says.

The agency says it recently revised its forecast for a steeper contraction in Hong Kong's economy this year, due to sustained uncertainty on both domestic and external demand, and that it expects a further widening of fiscal deficit due to the rollout of Hong Kong's third anti-epidemic fund (AEF).

"However, fiscal buffers remain sufficient to withstand a temporary fiscal deterioration, in our view," S&P says.

"The stable outlook reflects our expectation that the fiscal slippage seen this year will not persist over the next two years.

"It also reflects our expectation that Hong Kong's autonomy in setting economic policies, as laid out in the Basic Law, will be upheld, and that changes in relations between the U.S. and Hong Kong will not materially weaken the territory's financial sector, public finances, and economic growth prospects."

S&P says the ratings reflect its view of the limitations in Hong Kong's institutions to respond to pressing societal demands, "some of which have been mounting over many years".

"This likely contributed to an erosion of social cohesiveness, weakened public support for Hong Kong's political and civil service institutions, and increased uncertainty over its longer-term growth prospects.

"Hong Kong's distinct nature as an open economy, a financial hub, and a special administrative region within the People's Republic of China, raises the importance of maintaining market confidence.

"Potential negative developments that undermine such confidence could have widespread spillover into its growth prospects, public finances or institutional strength."

 www.standardandpoors.com (ATI).