Fitch Ratings downgraded Hong Kong's long-term senior unsecured and issuer default ratings to AA from AA+, with a negative outlook, as it forecast the semi-autonomous territory's real GDP growth to stall this year amid monthslong protests.
"Months of persistent conflict and violence are testing the perimeters and pliability of the 'one country, two systems' framework that governs Hong Kong's relationship with [mainland China], underscored by mainland officials taking a more public stance on Hong Kong affairs than at any time since the 1997 handover," the rating agency said.
The demonstrations, which started in early June, have "inflicted long-lasting damage to international perceptions of the quality and effectiveness of Hong Kong's governance system and rule of law" and have questioned the stability of the Asian financial hub's business environment, Fitch said.
The negative outlook reflects Fitch's view that the official withdrawal of the controversial extradition bill, which had initially triggered the protests, is not expected to completely eliminate public discontent. The agency added that the potential for renewed social unrest could further undermine confidence in Hong Kong's business environment and political stability.
Fitch forecasts real GDP growth at 0% in 2019 and 1.2% in 2020. Last month, Hong Kong officials revised the 2019 real GDP growth forecast to a range of 0%-1% from an estimate of 2%-3% in May.
Meanwhile, Fitch expects Hong Kong's financial buffers to remain intact due in part to a fiscal reserve equivalent to 40% of GDP.
The agency affirmed Hong Kong's short-term issuer default ratings at F1+.
