The International Monetary Fund has cut its forecast for Hong Kong’s economic growth to 2.2 per cent this year. However, it was still above Financial Secretary John Tsang Chun-wah’s projection of 1 to 2 per cent growth announced in this year’s budget. The IMF’s latest forecast is a 0.5 percentage point cut from the projection it made in October last year. The Washington-based organisation also cut the city’s 2017 forecast from 2.8 per cent to 2.4 per cent. This came after rating organisation Moody’s downgraded its outlook for Hong Kong from stable to negative to reflect the city’s tightening political, economic and financial linkages to mainland China. Asked about recent political tensions between the two sides and whether they would affect the city’s economic future, Changyong Rhee, director at IMF’s Asia and Pacific Department, said Hong Kong had “benefited from one country, two systems” and that he hoped “it could continue”. China ‘spillovers’ cloud outlook for Asia’s growth, IMF says Ranil Salgado, division chief of regional studies at the IMF department, said the city’s GDP growth downgrade stemmed more from the global economy’s overall sluggish environment rather than its close linkage to China. “We do see some bumpiness from China’s economic transition,” said Salgado. “But more than that, it really is the overall sluggishness of the global economy, which seems to be affecting more advanced Asian economies including Hong Kong’s.” China’s plan for trillion-yuan debt-to-equity swap could backfire, IMF report warns “We do believe it will support short-term growth in China,” he added. But he expected China’s positive influence to start manifesting in 2019. Rhee added the Chinese economy’s recent recovery at the start of the year “seemed to continue” in the second quarter. He said Hong Kong, as a small and open economy, served as a regional financial centre and that this had made it more sensitive to external economic factors. China’s finance minister accuses credit rating agencies of bias In contrast, the IMF upgraded the mainland’s GDP forecast, revising its economic growth estimate this year from 6.3 per cent to 6.5 per cent on Beijing’s recent policy stimulus which included expending further credits. Despite the cut, the IMF said it was still bullish on Hong Kong, as it forecast the city’s GDP growth in 2017 to pick up, expanding at 2.4 per cent. Standard & Poor’s cuts China, Hong Kong sovereign credit outlook to negative from stable “Hong Kong by and large remains in a very strong position,” said Sally Chen, a local IMF representative. “It has very strong buffer for its financial and banking system.” In its regional survey, the IMF said the headwinds from higher interest rates and slower mainland growth were expected to continue to have an impact on the city’s already battered tourism and retail sectors in the coming year. Hong Kong’s credit rating risks cut as financial secretary blasts Moody’s assessment as ‘mistake’ The survey highlighted the city’s close links with the mainland, in which it said Hong Kong might easily suffer a financial spillover from China. “Economies most sensitive to further volatility in Chinese markets are those with strong trade links with China,” the group said. Cross-border loans to the mainland accounted for 32 per cent of banking system assets in Hong Kong, according to rating institution Fitch. Mainland companies listed in Hong Kong account for more than 50 per cent of the weighting of the Hang Seng Index .