US economic recovery could spell disaster for Hong Kong
City's property market would suffer a huge blow from higher American interest rates, which are likely to result if the US recovery progresses
Last Friday, the United States released data showing the world's biggest economy grew at a weaker than forecast 2.5 per cent annualised rate over the first three months of this year.
With US consumer inflation subdued at just 1.5 per cent last month, the soft first-quarter growth number has bolstered expectations that the Federal Reserve will continue its programme of quantitative easing for the time being at least, and keep interest rates ultra-low until the end of next year.
Whether that's good or bad news for Hong Kong depends on how you see the local property market.
Back in late 2008, when the Fed started its first round of quantitative easing, money began pouring into Hong Kong's financial system.
To get an idea of how much money, look at the first chart. This shows Hong Kong's monetary base, together with the net domestic liabilities of local banks, to give the city's total liquidity stock - a measure borrowed from Morgan Stanley.
As you can see, local liquidity surged during the first round of US quantitative easing, and then surged again last year when the Fed embarked on its third round. As a result, Hong Kong's liquidity stock now stands at triple its pre-crisis level.