Hong Kong’s credit ratings maintained with stable outlook, says S&P Global Ratings

Investing.com -- S&P Global Ratings affirmed Hong Kong’s ’AA+/A-1+’ long- and short-term issuer credit ratings on May 27, 2025, maintaining a stable outlook for the long-term rating. The stable outlook reflects the expectation that Hong Kong’s economy will continue to grow at a rate consistent with other high-income economies despite uncertain international economic conditions for at least the next two years.

The rating agency anticipates that the budget deficit will stay below 4% of GDP on average over the next two to three years, even as the government increases infrastructure spending. However, it also warned that ratings could be lowered if Hong Kong’s economic growth significantly underperforms that of its peers on a sustained basis or if fiscal deficits consistently exceed 4% of GDP with no credible path to fiscal consolidation.

On the other hand, S&P Global Ratings could consider an upgrade if there is a substantial improvement in Hong Kong’s policy environment, leading to stronger social cohesion and long-term economic prospects.

Hong Kong’s creditworthiness is reflected in its high per capita income, large fiscal buffers, a strong external balance sheet, and credible monetary institutions, which are consistent with the highest rated governments. However, fiscal performance has deteriorated since 2019 due to increased social spending and the impact of the pandemic.

The city’s economic growth improved in the first quarter of 2025, registering a growth of 3.1% compared with a year ago, due to the pickup in investment and exports. However, the outlook for the next few quarters is likely to be affected by U.S. trade policies, which no longer treat Hong Kong as a separate customs regime.

Real GDP growth is forecasted to slow to 1.6% in 2025 and 1.8% in 2026, down from 2.5% in 2024. The direct impact from the U.S. tariffs on Hong Kong is expected to be limited, as exports to the U.S. comprised only about 6% of total exports in 2024.

Nevertheless, secondary effects from a potential slowdown in economic activity in mainland China could also dampen Hong Kong’s growth. As a result, the weighted growth in real GDP per capita is expected to average 1.4% over 2019-2028. The GDP per capita is estimated to increase to US$55,700 in 2025, up from US$54,100 in 2024.

Over the next three to five years, initiatives such as the development of the Greater Bay Area and various financial connections linking Hong Kong’s financial and services sector to mainland customers, could boost Hong Kong’s growth. However, stronger financial and economic linkages could also increase Hong Kong’s vulnerability to economic risks emanating from China.

In terms of fiscal consolidation, it is progressing slower than expected due to weak land sales and sustained spending on long-term infrastructure projects. Fiscal reserves are expected to decline faster than anticipated despite higher issuances of green and infrastructure bonds to fund capital spending. The fiscal deficit is expected to narrow marginally to 4.8% of GDP in fiscal 2025, down from 5.9% in fiscal 2024, as the government continues with its fiscal consolidation program.

Despite the economic downturn over the past few years, Hong Kong’s current account continues to record large surpluses. The city’s strong external position has been a consistent credit strength, with external liquid assets net of total external debt for public and financial sectors for 2025 projected to be about 54% of current account receipts. Hong Kong’s Linked Exchange Rate System, established in 1983, has facilitated monetary and financial stability, providing a nominal anchor for the financial system.

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