Global economic uncertainty strengthens outlook for Hong Kong’s office market
While the Hong Kong stock market is highly geared to the slowdown in mainland China, the commercial property market in particular is less exposed
The outlook for continued US economic strength is less certain than in 2015. Doubts about the sustainability of US recovery increased late last year and were reflected in the decline in the US government 10-year Treasury bond yield from December’s average of 2.24 per cent to a low of 1.66 per cent on February 11, a move that would traditionally be interpreted as an indicator of increased recession risk.
Concerns that the economy was weakening again were partially dispelled in late February with the release of some robust data. These included a 1.7 per cent year-on-year increase in US inflation for January, the strongest growth rate since December 2012 and an upward revision in gross domestic product growth for the fourth quarter of 2015 from 0.7 per cent to 1 per cent.
These figures supported share indices and boosted the 10-year Treasury yield, which now stands at 1.88 per cent. However, the US economy still faces substantial challenges. These include the long slump in energy prices and the adverse impact on growth and corporate margins of weakening overseas demand and US dollar strength.
With positive and negative factors fairly balanced, the consensus opinion among economists now appears to be that there is an even chance that the Federal Reserve will raise interest rates in 2016, in line with its original projections, or that it will fail to do so.
Hong Kong office prices should remain high because too much capital is chasing too little stock
Outside the US, global economic prospects have clearly weakened so far in 2016. European central banks have been pushing interest rates into negative territory for some time in an effort to boost growth, while the Bank of Japan followed suit in late January.
However, deterioration in the global economic picture has been most evident in emerging markets. Chinese GDP growth fell to a 25-year low of 6.9 per cent in 2015 and is almost certain to be weaker this year. While growth in China remains solid, among other key emerging markets, South Africa is teetering on the brink of negative growth, and Russia and Brazil are in outright recession. Among the so-called BRICS countries, only India is performing well.