Hong Kong top financial official on Sunday said the Chinese territory is likely to cut its economic growth forecast next week, citing fallout from the Covid-19 pandemic and rising US interest rates.
Hong Kong’s gross domestic product (GDP) contracted by 4% in the first quarter. In its most recent forecast in February, the city’s government forecast GDP growth for 2022 of 2%-3.5%.
But Paul Chan, Hong Kong’s financial secretary, signalled that range would be optimistic.
“Although we expect that economic data will improve slightly as the epidemic is gradually brought under control and economic activities resume slightly, the recovery of the internal economy will take time,” Chan wrote in his blog.
“The external environment will continue to be uncertain and risks will increase, all of which will be detrimental to the economic situation of Hong Kong this year,” he added.
He said Hong Kong’s embattled small and medium-sized businesses would face higher borrowing costs. “Hong Kong … has been in a low interest rate environment for more than a decade,” Chan wrote.
“Low capital costs are conducive to borrowing and business, and have also eased the interest burden on property owners.”
More Interest Rate Hikes
But the US Federal Reserve last week raised interest rates by 0.5% last week, the first increase of half a percentage point in 22 years.
“Even if the Fed officials’ remarks temporarily downplayed the possibility of a larger interest rate hike in the future, it has established that there will be more interest rates for the rest of the year,” Chan said.
With the UK and Australia also raising rates, he noted, the global capital supply will be under pressure, Chan wrote in his blog. Hong Kong’s small and medium-sized businesses, already faced pressure. Retail sales fell 13.8% in March and 7.6% in the first quarter.
“These figures all reflected the enormous impact from the fifth wave outbreak on the economy,” he added. “When domestic demand is still recovering but risks from the external environment continue to grow, these are not ideal conditions for Hong Kong’s economy this year.”
- George Russell