7th December 2023 – (Hong Kong) The Hong Kong economy is expected to experience slower growth than previously anticipated, with economists revising their GDP growth forecasts for both this year and next. The median estimate in Bloomberg’s latest survey of economists shows a cut in the GDP growth projection for 2023 from 4% to 3.3%. Additionally, growth in the fourth quarter of this year is expected to reach 4.8% year-on-year, falling short of the previous poll’s projection of 6.5% growth.
The outlook for 2024 is also dimmer, with GDP growth expected to expand by 2.7%, lower than the earlier estimate of 3%. Economists highlight challenges stemming from China’s economic slowdown and the impact of elevated interest rates as factors weighing on Hong Kong’s financial hub.
Heron Lim, an economist at Moody’s Analytics, expressed concerns about missed opportunities and a lacklustre recovery in 2023, as Hong Kong’s GDP is not expected to surpass the pre-pandemic peak reached in 2021. The economy rebounded by 6.4% in 2021 after experiencing a 6.5% contraction in 2020.
The downgrades in growth forecasts reflect a sluggish post-pandemic recovery, despite a boost in tourism this year. They suggest that Hong Kong still faces challenging times as an Asian financial centre.
The revised forecast for 2023 aligns with the Hong Kong government’s official projection of 3.2% GDP growth this year. Authorities cited external challenges, including rising geopolitical tensions and tight financial conditions impacting exports and consumer confidence, as reasons for lowering their growth forecast.
Lim anticipates that consumption and investments in the city may pick up next year as pressure from high-interest rates is expected to ease over time.
Hong Kong’s interest rates closely follow those of the U.S. Federal Reserve due to the local dollar’s peg to the US dollar. This means that the city has raised rates in line with the Fed’s tightening cycle. Although the U.S. central bank is expected to begin cutting rates at some point next year, interest rates are likely to remain elevated for a considerable period.
Lim notes that risks persist, including U.S.-China relations and the Fed’s decision to maintain higher interest rates for an extended period.
Separately, Moody’s Investors Service recently revised its outlook on Hong Kong’s credit rating to negative from stable, while affirming the city’s long-term underlying rating at Aa3. The agency cited the close trade and financial links between Hong Kong and China as the primary reason for the adjusted outlook, following its decision to cut China’s credit rating outlook.