Credit agency Moody's Investors Service has repeated its warning that an economic slowdown in the mainland will adversely affect Hong Kong, despite predictions the local downturn will abate this year.
In its annual report on Hong Kong, Moody's analysts predicted gross domestic product growth would not improve substantially from last year's minus 5.1 per cent growth.
In turn, the continuing grave GDP position would result in a second year of budget deficit.
Declining asset prices and a drop in real GDP had also affected asset quality among the banks, although Hong Kong's banking system remained relatively strong, Moody's said.
The report observed that Hong Kong - as the biggest 'foreign' investor in the mainland - had become increasingly integrated into the mainland's economy.
'While some regional economies should improve and Hong Kong's downturn should moderate, continued slow growth and challenges facing the [mainland] economy will affect Hong Kong in 1999,' Moody's said.
Moody's managing director for Asia-Pacific, Ted Young, yesterday said that with the migration of manufacturing operations across the border over the past 20 years, Hong Kong's economy had become more closely attached to the mainland.