Fiscal policy has been broadly accommodative in the past years, with an annual average fiscal deficit of -4.7% of GDP since 2019, with broad-based stimulus measures to businesses and households.  The fiscal deficit reached -5.9% of GDP in 2024, is estimated to have narrowed to -4.8% in 2025 and should gradually decrease before reaching around -1.5% in 2027, reflecting the government’s commitment to fiscal discipline and projected increased revenues from land sales and taxes. 

On the monetary policy front, the Hong Kong Monetary Authority (HKMA) has limited room to maneuver as the Hong Kong dollar is pegged to the USD. Consequently, policy rates are primarily a function of the actions of the US Federal Reserve and have seen a cumulative increase of 525bps between 2022 and 2024, before pivoting in September 2024 (in line with the Fed). Further monetary easing in 2025 has resulted in -175bps of cumulative policy rate cuts (to 4%). We expect one further cut in 2026, in line with the Fed. At the same time, high levels of interbank liquidity in Hong Kong means banks’ reliance on HKMA facilities are limited, restricting the effective transmission of monetary policy. In terms of prices, the currency peg has broadly kept inflation under control and we expect moderate overall price growth of +1.9% in 2026 and +2% in 2027 (after +1.4% in 2025).

Short-term financing risk broadly remains low as the economy has strong fundamentals in terms of public and external balances. Despite remaining high relative to historical levels, gross public debt as a percentage of GDP remains low internationally and will remain below 15% of GDP in 2026-2027.

In terms of external balances, Hong Kong’s current account balance has recorded surpluses for more than 25 years now (including during external and domestic shocks such as the Great Financial Crisis and the Covid-19 pandemic), which has resulted in the accumulation of external financial assets. Despite headwinds going forward caused by the US trade war, we expect the current account balance to maintain a surplus of around 12% of GDP in 2026-2027, in part supported by services trade. The main structural vulnerability arises from the economy’s geographical and sectorial concentration in terms of its trade structure. Hong Kong’s reliance on mainland China for exports (notably of electronic machinery and appliances) makes it vulnerable to potential cyclical swings in global demand and in mainland China, as well as rising geopolitical tensions. Meanwhile, gross external debt remains high at around 500% of GDP. However, this only reflects Hong Kong’s position as a global and regional financial center, more than a structural vulnerability.

The business environment in Hong Kong remains strong with internationally renowned infrastructure, the free port status, favorable policies in terms of trade and exchange controls and tax policies. The World Bank Institute’s annual Worldwide Governance Indicators survey indicates strong scores with respect to the regulatory and legal frameworks and the control of corruption. Likewise, the Heritage Foundation’s Index of Economic Freedom survey in 2020 (coverage of Hong Kong in the survey has been discontinued since) suggests a broad-based strength in economic freedom, notably with regard to property rights, government integrity, tax burden, government spending, fiscal health, business freedom, labor freedom, trade freedom and financial freedom. Our proprietary Environmental Sustainability Index ranks Hong Kong 196th out of 210 economies, owing to a very low level of renewable electricity output and moderate recycling rate and energy use per GDP. 

We do not expect significant changes to the political landscape in Hong Kong and disruptions to business and public services are unlikely in the short to medium term, in the context of national security legislation implemented in 2020 and 2024. John Lee was elected as the Chief Executive of Hong Kong following a restricted-franchise poll in May 2022 and is likely to retain support from mainland China’s central government in the next election in 2027. Legislative Council elections took place in December 2025, confirming a fully pro-government legislature. While the territory will retain a high degree of autonomy under the Basic Law, a great deal of local policy steering will be influenced by mainland China’s central government.