HK may revise economic forecast if markets worsen

PUBLISHED : Sunday, 20 May, 2012, 12:00am
UPDATED : Sunday, 20 May, 2012, 12:00am


Hong Kong may need to revise its economic forecast if a Greek exit from the troubled euro zone causes major turbulence in the global money markets, according to a government economist.

The rapid political developments in Greece in recent weeks have seen its citizens withdraw money from banks amid fears the country will leave the euro zone.

Although the Hong Kong government took the European debt crisis into account when it made its economic forecast in the budget, Government Economist Helen Chan does not rule out a revision in August if a Greek euro exit causes a ripple effect in the region.

'If the situation further worsens, of course we cannot rule out a revision,' Chan (pictured) said: 'Risks have become much higher as compared to three months ago ... the chance of a global economic decline is on the increase.'

The government had predicted a 1-3 per cent increase in gross domestic product for the current year, which is quite a big range compared to forecasts it made in previous years. The forecast was made based on an assumption that there would be a moderate decline in Europe and growth in the United States economy, Chan said. But it did not assume a sharp deterioration in the European economy, which could be the case if the exit of Greece prompted bigger European countries to leave the euro zone.

She was most concerned about the reaction of Italy and Spain to Greece's possible exit. The situation in Spain was particularly alarming, she said, as rating agency Moody's just downgraded the credit rating of the country's 16 banks.

In the space of just a year, growth in Hong Kong's GDP has dropped from 7.6 per cent year on year in the first quarter of 2011 to 0.4 per cent for the first quarter of this year, thanks to the worsening European debt crisis. Also in the first quarter, total exports decreased 5.7 per cent year on year, the biggest drop since the third quarter of 2009.

However, local property prices still increased by 5 per cent in the first quarter, a trend that runs counter to other economic indicators. 'We deem this [growth] is unhealthy ... the chance for a bubble to develop [in the property market] has increased,' she warned. Citizens should pay attention to risks when they bought flats, in the face of turbulence in the global markets.

Although there was abundant cash in the banking system, given abnormally low interest rates, banks should lend with care to prevent the onset of a credit crisis, she said.


Helen Chan's forecast for HK's inflation this year

-Stagflation could result if growth is low