However, GDP growth may recover 1.2% by 2020.
The economy is expected to contract by the second half of the year and post 0% growth for the full year amidst the ongoing conflict ravaging the city although GDP growth may bounce back 1.2% by 2020, according to Fitch Ratings. Budget surplus is also expected to narrow to about zero this year.
Also read: GDP growth holds firm at 0.6% in Q2
The agency cited that the stability and dynamism of Hong Kong’s business environment has been called into question due to the ongoing conflict in the city.
However, ING Asia commented that the perception on the city’s rule of law should improve after the withdrawal of the extradition bill, and proposed a projected GDP growth of 1.0% in 2019 and 1.4% in 2020.
“We think protestors will express their views through the election of the Legislative Council in September 2020, which will help to rebuild the communication channels between the people and the government,” ING economist for Greater China Iris Pang said.
In a first since 1995, credit rating agency Fitch has downgraded Hong Kong’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to “AA” from “AA+” with a negative outlook.
The gradual rise of economic and socio-political linkage with mainland China, which has a credit rating of A+, has been cited to possibly cause the island city greater institutional regulator challenges over time. However, Fitch believes that the “one country, two systems” framework will likely remain intact.
Also read: Close Chinese financial ties are both boon and bane for Hong Kong banks
In addition, the agency expects some public discontent to persist even with the withdrawal of the extradition bill, hence the negative outlook.
Nonetheless, Hong Kong was still set to hold a fiscal reserve equivalent to 40% of GDP, and is set to remain the third largest net external creditor amongst Fitch-rated sovereigns with an over 20-year record of current account surpluses.