Forecasts for Hong Kong growth downbeat

Disappointing second quarter prompted government to lower growth prediction - many economists are now following suit

PUBLISHED : Tuesday, 19 August, 2014, 4:18am
UPDATED : Tuesday, 19 August, 2014, 5:48pm

Analysts are taking a less-optimistic view of Hong Kong's economic prospects in the second half of this year after the government lowered its forecasts.

A disappointing second quarter, from April to June, led the government to lower its annual growth forecast from 3 to 4 per cent to between 2 and 3 per cent last week. However, George Leung, adviser to the chief executive of HSBC, said this range was too wide.

"[Second-half] economic growth in Hong Kong will at most be 2 per cent, and the annual growth rate will be much lower than 3 per cent," he said.

"But a technical recession is unlikely," he added.

Many analysts also trimmed their forecasts as a result of the disappointing second-quarter economic report, which saw GDP up by 1.8 per cent only - compared to 2.6 per cent the previous quarter and 0.6 per cent lower than expectations. The economy expanded 2.9 per cent last year.

RBS and Citi analysts have lowered their full-year forecast by 0.6 per cent from their previous projections, to 2.4 per cent.

ANZ had made a lower-than-actual forecast of second-quarter GDP and accordingly upped its full-year forecast to 2.5 per cent from the previous 2 per cent.

Leung said the wide range of the government's expectation indicated it was taking into account unknown factors.

He expects the unemployment rate to rise slightly in the second half, with inflation to remain steady at about 4 per cent.

RBS said three factors would weigh down the economy from July to December.

First was the dull acceleration in global demand, followed by a decrease in spending by mainland visitors and a headwind in the property market.

A possible factor is the rumoured change in the individual visit scheme under which mainlanders can visit Hong Kong without joining a tour. Citi said such a curb on visits would "deal a further blow to retail sales and exports of services".

ANZ's report says "the real interest rate remains the single biggest factor determining real estate prices".

Economists say political turmoil over electoral reforms for the 2017 chief executive election and the Occupy Central movement has yet to affect the second quarter. Leung said the current economy seemed unaffected.

Conversely, chaos in global politics would draw capital to politically more stable economies such as Hong Kong.

According to ANZ, such movement is unlikely to have an immediate impact on the city's financial markets, but might hurt its economic competitiveness.

They believe government policies that hinder cross-border flows, such as curbing numbers of mainland travellers, pose bigger risks to the economy.