HSBC revises down HK growth outlook

PUBLISHED : Wednesday, 02 November, 2011, 12:00am
UPDATED : Wednesday, 02 November, 2011, 12:00am


HSBC is slashing Hong Kong's economic growth forecasts for both this year and the next as economists warn the euro-zone debt crisis will continue to hit local exports.

The bank cut the city's gross domestic product growth forecast to 5.4 per cent year on year, from 6.5 per cent earlier. It reduced its growth forecast for next year to 4.5 per cent from 5.4 per cent.

'Hong Kong exports slowed quite shockingly and that will hamper the important logistics sector,' said Frederick Neumann, HSBC's co-head of Asian economic research. 'The financial market will also continue to be very volatile and this will hold back economic growth in Hong Kong to some extent.'

On the brighter side, the bank predicted strong retail sales and tourist spending would keep the city from slipping into a recession.

Neumann stressed that any downturn would not be a repeat of the credit crisis of 2008 and that China was supporting the region with its strong economic growth.

While the bank maintained a strong GDP growth forecast of nearly 9 per cent for the mainland for this and the coming year, it believed the mainland's inflation would ease from now on. Inflation, however, will remain a concern in Hong Kong.

'There is a risk that by the middle of next year when Hong Kong's economy revives inflation will come back into the picture,' Neumann said.

HSBC expects mainland inflation would be kept below 2.8 per cent in the coming two years.

By contrast, the bank said Hong Kong's year-on-year increase in consumer prices will climb back to 6.1 per cent in the third quarter next year from between 4.2 per cent and 4.8 per cent in the nine months to June.

Towards the end of next year, it could further advance to 6.4 per cent as an economic recovery puts pressure on property prices and wages.

Financial Secretary John Tsang Chun-wah warned of a bleak economic outlook last week, after Hong Kong's overseas shipments in September dropped 3 per cent to HK$271.8 billion - the first fall in almost two years. The decrease follows a 6.8 per cent gain in August.

Meanwhile, Ethan Harris, head of developed-market economics at Bank of America Merrill Lynch, said the US Federal Reserve meeting today was unlikely to result in any important announcements.

The European Central Bank, however, is expected to cut interest rates at the end of this year in a bid to stabilise the economic bloc's economy.

David Woo, head of global rates and currencies research for Bank of America, said stagflation in emerging Asian economies, like Hong Kong, was unlikely. That is because regional prices rises are driven by highly cyclical swings in commodities costs.

Woo also said Beijing might reduce interest rates twice, each time by 25 basis points, from the second quarter next year onwards as its efforts to bring inflation under control take hold.