Financial Secretary John Tsang Chun-wah has warned of challenging conditions in the Hong Kong economy this year in light of volatile Western and Japanese markets. Tsang also raised concern over the risk of higher inflation and asset bubbles because of hot money flows. The United States, Europe and Japan in September last year separately issued monetary easing policies to ensure interest rates remain low and to provide money for banks to lend to business and investment. This resulted in hot money flows into Asian markets, including Hong Kong, to bet on stocks and property. To prevent any property bubble, Tsang said the government might impose more measures when needed. "In the past, we rolled out multiple series of specific initiatives to cool the property market and tackle speculation. I will roll out more measures without hesitation when I need to," he told a lunch meeting yesterday. Ma Jun, a China economist at Deutsche Bank, said the property market might face headwinds as the government could unveil additional measures to curb speculation. Tsang said homebuyers should be aware that interest rates might not stay low forever. Under the currency system in which the Hong Kong dollar is pegged to the US dollar, Hong Kong's interest rates have to follow the US. Last month, the US government said it would raise interest rates when unemployment reached 6.5 per cent and inflation 2.5 per cent. Tsang said this meant the US might increase interest rates earlier than 2015 as it previous targeted. If US and Hong Kong interest rates rose, homebuyers would have to pay more for their mortgage loans, which would be a serious blow to property prices. "Hongkongers, especially the young, who wish to buy a new home must consider their ability to pay their mortgage and closely monitor changes in interest rates before making a decision," Tsang said. He also said the European debt crisis had shown no signs of quick recovery and he was particularly worried about the slow export and poor economic outlook in Japan. These factors would affect Hong Kong's economic growth although the rapid expansion in mainland China would help offset the negative impact from the West, he said. "Overall, I expect 2013 to be a year full of challenges - we cannot be too optimistic about our economic growth, and unemployment and inflation are facing the risk of going up," he said. "While pay rises have slowed down, we have seen rents continue to increase quickly. This reflects that there is a conspicuous risk of a higher inflation rate." Deutsche Bank is more optimistic. Ma projects the city's gross domestic product to expand 2.5 per cent this year, driven by economic recoveries in the US and mainland China. As such, the shipping and export sectors might rebound.