Cosco shipping containers sit on a dock at Victoria Harbour. Hong Kong export is expected to return to positive growth next year, according to S&P's latest report. Bloomberg News

HONG KONG: A newly released report by international ratings agency Standard & Poor's (S&P) said Hong Kong will see sharper growth and exports will return to positive growth next year.

S&P said the city's economic activity continued to stabilize in the third-quarter, driven primarily by a recovery in domestic demand and on the mainland, but inflation is picking up due to the government withdrawing fiscal concessions.

"Continued contraction in exports remains a concern, but export is expected to return to positive growth next year," the report said.

But the ratings agency said Hong Kong should see sharper growth in 2010 partly due to a low base and partly due to strong recovery on the mainland.

S&P said the fourth quarter promises positive growth after a considerably sharp decline at the same time in 2008.

"This will prop up the annual outlook. In 2010 the economy will benefit from improved global demand and the China factor in particular," the report noted.

However, the agency said the city's external sector remains weak, though there has been some evidence of improvement in last few months.

S&P expects the city's current account surplus to moderate in 2009 as export contraction outpaces the decline in imports. An exports revival, contingent upon the mainland's recovery, will improve the surplus next year.

The report, titled "Asia-Pacific Economic Outlook Q4 2009: Exit Strategies and Inflation Are Main Issues for 2010 as Region Recovers", also looked at other major Asian economies, including Australia, New Zealand, Japan, the mainland, India, Hong Kong, Singapore, Korea, Taiwan, Indonesia, Malaysia, Philippines, Thailand, and Vietnam.

S&P said after a difficult year, things are looking up for Asia-Pacific rated economies. All are expected to post positive GDP growth in 2010. But concerns and challenges remain, as inflation is an issue for some economies, while the questions of when and how to exit from expansionary monetary and fiscal policies are critical for all the economies.

"Policy focus is gradually shifting from managing the crisis to managing the ongoing recovery," said Dharmakirti Joshi, author of the report.

"A critical challenge for all economies is how and when to exit from expansionary monetary and fiscal policies in a way that secures recovery. Most countries are likely to begin by exiting monetary easing, then gradually withdrawing their fiscal stimulus," he said.

(HK Edition 12/23/2009 page4)