Finance chief warns of cut to growth rate forecast for 2022
Paul Chan points to likelihood of further US rate rises and sluggish recovery of domestic markets
Hong Kong will “inevitably” have to downgrade its growth forecast for 2022, the finance chief has warned, pointing to the likelihood of further US rate rises and the sluggish recovery of the domestic markets following the waning fifth wave of Covid-19 infections.
Financial Secretary Paul Chan Mo-po also expressed concerns over the possible impact of higher interest rates on the local property market and homebuyers.
In his weekly blog post, Chan noted the pandemic continued to exert pressure on the economy despite signs of a revival in recent weeks in the wake of relaxed social-distancing rules and the release of another round of consumption vouchers.
“It takes time for the domestic economy to recover,” he wrote. “And the risks of the external environment … are set to get bigger. This is not conducive to Hong Kong’s economy this year.”
In an advance figure for first-quarter gross domestic product growth released last week, the government estimated the economy shrank by 4 per cent in real terms from a year earlier. The decline came after 4.7 per cent growth in the previous quarter.
The government blamed weak domestic and external demand, noting the city was grappling with the worst wave of infections since the pandemic began.
The government will release more detailed statistics for the first quarter, including a revised GDP forecast for 2022, on Friday.
In his budget address delivered in February, Chan predicted the economy would expand by between 2 per cent and 3.5 per cent in real terms in 2022. Hong Kong recorded 6.4 per cent growth last year.
In his blog post, Chan also noted retail sales in March decreased by 13.8 per cent, year on year, and fell by 7.6 per cent in the first quarter.
“The catering sector faced even bigger pressure,” he wrote. “The value of total receipts of restaurants in March was only HK$3.93 billion, a record low for a month. For the first quarter, total receipts amounted to about HK$15.1 billion, a 16-year low.
“We are reviewing the forecast for economic growth and will announce the latest one in the [coming] week. Under the present situation, it seems a downward adjustment will inevitably be needed.”
Professor Terence Chong Taileung, executive director of Chinese University’s Lau Chor Tak Institute of Global Economics and Finance, agreed that a lower growth forecast was inevitable.
“It is hard to comment if Chan is too pessimistic,” Chong said. “But if the lower band of the original forecast of 2 per cent is to be achieved, we would need the coming three quarters to have at least 4 per cent growth each quarter. This is challenging, given that the base last year is high.”
Chan also warned that the era of low interest rates could be over after the United States Federal Reserve last week raised the benchmark interest rate by 50 basis points in a bid to curb soaring inflation, which hit 8.5 per cent, the highest level since 1981. Fed chairman Jerome Powell said further 50-basis-point hikes were not off the table.
The finance chief warned that homebuyers could be among those bearing the brunt of the rate rises, noting roughly 37 per cent of their income went to mortgage payments.