Economists and analysts are fond of making forecasts about the future. And it has long been a routine practice in financial markets to issue outlook reports on different aspects of the economy at the beginning of every year for the coming year. 2017 is no exception: We have already read numerous outlook reports. But in the absence of a crystal ball, any outlook is as good as soothsaying. We have read bearish outlooks as well as bullish ones for the Hong Kong economy in 2017. That said, one thing many forecasters are pretty sure of is that 2017 comes with a high level of uncertainty.

The biggest unknown is perhaps the impact of the new rate hike cycle in the US. After the US Federal Reserve's unanimous decision to raise the federal funds rate by a quarter percentage point on Dec 14, that US interest rates are on an upward cycle is beyond doubt. Higher US interest rates, which in effect are part of a new monetary tightening process, will affect Hong Kong's asset markets, particularly the much inflated prices of real estate, in two ways: They will trigger a reversal of capital flows and lift the cost of money in Hong Kong; both factors will depress demand.

Rising trade protectionism is another big challenge for the Hong Kong economy in the coming year. There has been a fairly wide consensus among experts that the odds are high that a new wave of trade protectionism will emerge with a Donald Trump presidency. Being a small, open and outward-looking economy that relies heavily on trade, the Hong Kong economy is particularly vulnerable. This is especially true in the event of a global trade war.

But challenges could be a blessing in disguise for Hong Kong. Hong Kong people were known for their perseverance and tenacity in the past. A challenging 2017 in all likelihood could help Hong Kong revive its can-do spirit - which has driven the city's economic success in the past. It has also driven the success of Rex Tso Sing-yu, Hong Kong's "Wonder Kid", who has just made it to the top of the World Boxing Organization's super flyweight division, making him the first Hong Kong fighter to attain a No 1 ranking worldwide.

Hong Kong can also draw on the unfailing support of the central government, as has been reiterated by Premier Li Keqiang recently, in the face of external challenges. Closer cooperation and integration with the mainland economy will help the Hong Kong economy meet the challenges and buffer external shocks. And an active participation in the nation's 13th Five-Year Plan (2016-20) and the Belt and Road Initiative will generate opportunities that can enhance Hong Kong's economic vitality.

(HK Edition 01/05/2017 page10)