Finance & Economics

Economists Worsen Hong Kong’s Growth Outlook

Experts suggest that the growth rate of the Hong Kong economy this year and in 2024 will be less intense than initially expected.

Economists Worsen Hong Kong’s Growth Outlook

The deterioration in the outlook of the mentioned dynamic is due to several factors, mainly the weak recovery in China after the coronavirus pandemic and the impact of increased interest rates on this financial center, which has already become a sensitive pressure source.

The average estimate of experts surveyed by the US media regarding the prospects for growth of Hong Kong’s gross domestic product is at 3.3% in the context of the forecast for 2023. Previously, they expected this figure to increase by 4%. Experts also predict that in the fourth quarter of 2023, Hong Kong’s GDP will grow by 4.8% year-on-year. In September, their expectations were more optimistic. In early autumn, experts predicted GDP growth in Hong Kong at 6.5%.

The assessment of the prospects for 2024 is less optimistic. Economists expect Hong Kong’s GDP growth to be 2.7% next year compared to 2023. This is a deterioration in the forecast. In autumn, experts expected Hong Kong’s GDP to grow by 3% next year.

Heron Lim, an economist at Moody’s Analytics, says that currently, the mentioned financial center has reason to regret many missed opportunities. According to the expert, 2023 turned out to be a lackluster year for Hong Kong, as evidenced by the fact that local GDP could not exceed the figure recorded in 2021 when there was an extremely difficult situation with the coronavirus pandemic. He also noted that economic growth of 6.4% was recorded in this region that year. This is a positive signal. In 2020, the Hong Kong economy showed a drop of 6.5%. The result of the current year indicates a recovery, despite the deterioration in the mood of analysts.

At the same time, experts are convinced of the difficult times that Hong Kong has yet to face. This point of view is explained by the fact that the recovery of the financial center’s economic system after the coronavirus pandemic turned out to be weak and did not meet expectations of strong growth. The revival in the sphere of tourism has failed to provide an overall positive dynamic.

The Hong Kong government forecasts economic growth of 3.2% this year. Until November, the local leadership was more optimistic about these prospects. The Hong Kong government explained the deterioration of the forecast by the fact that negative factors of influence are observed in the external environment, including a high level of tension in the geopolitical space and harsh financial conditions that put pressure on export activities and consumer confidence.

Heron Lim says that investment volumes in the mentioned region may increase next year. The expert also assesses the growth of consumer activity as a realistic scenario. This point of view is based on expectations of easing pressure from high-interest rates, which, according to analysts, will be reduced. In Hong Kong, the dynamic of rates is synchronized with the relevant decisions of the Federal Reserve System. This specificity is due to the binding of the local dollar to the US dollar. Interest rates in Hong Kong rose at the same time as the so-called cycle of aggressive tightening launched by the Fed. Many experts and representatives of the financial environment expect that next year the mentioned American regulator will change its policy at some point.

Heron Lim says that the implementation of the specified forecast is threatened by several risks. According to him, there is a high probability that the Fed will not decide to lower interest rates during a longer period than expected. He also says that in this case, tension in relations between China and the United States may become a significant factor in influencing the economy of the financial center.

Last Wednesday, December 6, Moody’s Investors Service downgraded the outlook on Hong Kong’s credit rating from stable to negative. At the same time, the city’s long-term baseline rating was confirmed at Aa3.

As we have reported earlier, Moody’s Changes China Credit Outlook to Negative.