Hong Kong growth expected to gather speed next year
Hong Kong's economic growth is set to speed up next year as advanced economies begin to recover. But the city's property market still looks shaky.
An expected tapering of the US Federal Reserve's stimulus could spark a capital outflow from Hong Kong, which together with market-cooling measures could slash property prices by 10 per cent, analysts said.
Citi Research and Standard Chartered Bank respectively forecast Hong Kong's gross domestic product will jump by 3.4 per cent and 4 per cent next year, compared to 3 per cent this year.
Strong infrastructure investments and better exports following continuous recovery in the US and the euro-zone economies will help jump-start growth.
But both expected the year to have a bumpy start as a reduction in the Fed's bond buying - which could start as early as March - may draw capital out of the city's equity market. They believe the magnitude would be moderate given Hong Kong's connection to mainland China and its leverage as an offshore yuan market.
Senior rates strategist at Standard Chartered Becky Liu said the issuance of dim sum bonds in Hong Kong may jump to HK$500 billion next year from HK$360 billion this year in light of redemption of maturing bonds.
Adrienne Lui, an economist at Citi, expects Beijing to relax or lift the cap on the daily conversion amount between yuan and Hong Kong dollars to mark the 10th anniversary of the launch of yuan banking business in the city.
But Hong Kong's property prices could fall by 10 per cent despite growth improving, as the government's market-cooling measures are expected to stay.
"Officials said the measures can be reversed in light of a sharp fall in property prices, but what they meant by sharp could be a correction of between 20 and 30 per cent. A drop of 10 per cent is well within their expectation," Lui said, adding that such a decline will not affect local consumption and the capital market, and is, in fact, healthy as it gives the government enough time to increase the housing supply.
The two firms expected mainland economic growth to recede to around 7.3 per cent next year, although Citi projected heavier inflation of 4 per cent, which may prompt China to raise interest rates by 25 basis points towards the end of 2014. At the same time, the yuan is expected to appreciate by 1 to 2 per cent against the US dollar on the back of further liberalisation of the capital account, but there will be further tightening of liquidity in China in light of worsening government debts, the analysts said.
Johanna Chua from Citi said growth in some emerging markets like Malaysia and the Philippines will slow, as they were not direct beneficiaries of booming demand for hi-tech products like smartphones and tablets. South Korea and Taiwan, meanwhile, would be regional winners.