HONG KONG ECONOMY

Hong Kong economy set for tough year in 2017, economists warn

Strong local currency and anticipated interest rate rises in the United States poised to weigh on growth

PUBLISHED : Wednesday, 04 January, 2017, 8:40pm
UPDATED : Wednesday, 04 January, 2017, 10:58pm

Hong Kong’s economy is set for a challenging year with a strong local currency and anticipated interest rate rises in the United States, economists have warned.

Despite recent signs of improvement and figures showing the city on track to meet its 1.5 per cent growth target for 2016, the local economy is likely to record slower growth in the year of the rooster, under pressure from weak exports, a slumping property market and slowing private consumption.

There was good news on Wednesday however with a University of Hong Kong macroeconomic study projecting 2.3 per cent growth year on year for the first quarter.

Paul Tang Sai-on, chief economist at the Bank of East Asia, said he expected the city’s economy to expand 1.4 per cent in 2017.

Better than expected but still not great: Hong Kong economy grows 1.7 per cent in second quarter

“The major concern for next year’s GDP growth is private consumption,” he said.

He said investment sentiment in the city’s property market could be dampened by capital outflows that could be triggered by several rounds of interest rate rises anticipated in the US in the coming year.

Hong Kong’s economy grew 1.9 per cent in the third quarter of last year, marking an improvement on the first and second quarter growth figures of 0.8 and 1.7 per cent respectively.

But Tang said the resilent labour market, which had provided strong support for the economy in 2016, might not be able to stimulate growth this year amid new risks hanging over the city.

Those included an unclear US trade policy under incoming president Donald Trump, and more aggressive interest rate rises by the US Federal Reserve – which could prompt money to go back to the US and drive up the value of the Hong Kong dollar.

A stronger local currency would also discourage exports, as goods and services in the city become relatively more expensive for overseas customers.

Daiwa Capital’s Asia chief economist Kevin Lai was even more pessimistic, expecting the city’s economic growth to enter negative territory this year.

Many workers in export industries are likely to see their incomes affected by the slowing growth despite government plans to boost local consumption in an effort to fend off external uncertainties, Lai said.

“Hong Kong was given a one-year cushion time because the Federal Reserve took close to no action in 2016,” he said, adding that the 1 to 2 per cent growth consensus among analysts was “too optimistic”.