Hong Kong Monetary Authority chief Norman Chan adds to gloom on economy

Norman Chan says higher rates in US may spur capital flight in region and hurt city

PUBLISHED : Monday, 11 August, 2014, 11:28pm
UPDATED : Tuesday, 12 August, 2014, 7:54am

Hong Kong's de facto central bank chief Norman Chan Tak-lam warned that the city's financial system could come under pressure when the United States raises its interest rates - a day after Financial Secretary John Tsang Chun-wah said the city's economy may face a "perfect storm".

Their comments came as some economists warned that the outbreak of Ebola had added extra uncertainty to Hong Kong's economic outlook, which is already clouded by political turmoil, stubbornly high home prices and sluggish retail sales.

In the Hong Kong Monetary Authority's bulletin yesterday, Chan warned of the possibility of capital flight from emerging economies if the US Federal Reserve raised rates next year.

Tsang warned on Sunday that the government would lower its forecast for Hong Kong's gross domestic product growth this year, after a disappointing second quarter that saw growth slow and unemployment rise slightly. GDP growth was originally predicted to range between 3 and 4 per cent for 2014.

The government is due to reveal second-quarter economic data, including GDP, on Friday.

Terence Chong Tai-leung, an associate professor of economics at Chinese University, said he was concerned about Ebola's impact if the deadly virus reached Hong Kong. "The impact could be comparable with that brought by Sars in 2003," he said.

Simon Wong Ka-wo, chairman of the city's Chamber of Food and Beverage Industry, was also worried about the impact of Ebola on the catering industry.

"Hundreds of restaurants were forced to close down during Sars. That was a dreadful experience and we don't want to see it again," Wong said.

Chong expects GDP growth for the whole of this year to be between 2.5 and 3 per cent, taking into account factors like Occupy Central and a potential interest rate rise - but provided the city can avoid Ebola infections.

"After Beijing comes up with a decision on electoral reform [for the 2017 chief executive poll], the political uncertainties will be dispelled and the market will be back to normal," Chong said.

"Even if the organisers of Occupy Central are unhappy with Beijing's decision, they are likely to organise another round of campaigning instead of staying in Central for months or years. Therefore, it's very unlikely the economic impact of Occupy Central will be long-lasting."