WARNING ON PACE OF CITY’S REBOUND AFTER FED ALERT

Hong Kong may be facing longer period of higher interest rates, but financial secretary rules out any drastic adjustments to growth forecasts

Financial Secretary Paul Chan Mo-po warned yesterday of a need to re-evaluate the pace of economic recovery in the city amid possible delays to US interest rate cuts, but said there would not be any drastic adjustments to growth forecasts.

Chan said Hong Kong might face a prolonged environment of higher interest rates as the US Federal Reserve had earlier indicated any cuts might take longer than previously anticipated after a series of surprisingly high inflation readings.

“In that case, interest rate cuts in the city may need to be pushed back. We may need to re-evaluate the pace of economic growth,” he said at a Hong Kong News-Expo event.

But he maintained his economic growth forecast of between 2.5 per cent and 3.5 per cent for the full year, the same range as for the first quarter.

Chan also said there would not be any drastic adjustments to the forecast following stronger than expected exports.

“We’ve envisaged a gradually rising trend with the second half of the year faring better than the first half,” he said.

“We are now still examining the relevant data and will release the economic figures next month. So far we don’t see any reason to drastically revise our forecast amid mild inflation and a low jobless rate.”

The unemployment rate remains at a low of 2.93 per cent and inflation stands at less than 1 per cent. Property prices had experienced a yearly decline of about 7 per cent to 9 per cent, while the stock market had fallen by 14 per cent.

However, Chan said home prices and turnover had stabilised following the removal of all cooling measures for residential property in February.

“Our initial analysis is that there is a demand for residential properties although high interest rates will exert pressure on the market,” he said.

“We expect property prices won’t fluctuate while transactions will become stable.”

Prices for second-hand homes have increased for the first time in almost a year as the removal of cooling measures gave a muchneeded boost to the beleaguered property market.

The average price of a lived-in flat rose 1.06 per cent in March, according to official data, the first gain in 11 months.

The index climbed to 305.7 from 302. 5 the previous month, according to the Rating and Valuation Department. The increase was broad-based, with all sizes of homes seeing a gain.

Prices are still down 13.2 per cent from a year ago and 23 per cent from an all-time high in September 2019. So far this year, prices have slipped by about 1.8 per cent.

Chan also noted that Hong Kong stocks had rallied after the mainland’s market regulator unveiled five measures aimed at enhancing the city’s status as a financial hub, with sentiment also getting a boost from the prospect of a bigger investor base following the changes.

The China Securities Regulatory Commission announced that it would facilitate Hong Kong listings by leading mainland companies and expand the Stock Connect cross-border investment scheme to further enhance connectivity between the mainland and Hong Kong capital markets.

The measures follow recent moves by the market regulator to raise the bar for new listings and strengthen delisting regulations.

Foreign investment flows into the mainland fell 26.1 per cent in the January-March period, according to data from the commerce ministry in Beijing.

Professor Terence Chong Taileung, executive director of Chinese University’s Lau Chor Tak Institute of Global Economics and Finance, said the delay to interest rate cuts would not have much impact on the city’s recovery.

“Both the property and stock markets have rebounded lately, signifying capital inflows to Hong Kong from the US market. So far this momentum can still be maintained,” he said.

“The rate reduction is only delayed for a while so the impact is only minor for the short term.”

He forecast the city’s economy would achieve moderate growth at between 3 and 4 per cent because of the positive effects from the removal of the property cooling measures and an improving stock market.

Interest rate cuts in the city may need to be pushed back. We may need to re-evaluate the pace of economic growth

FINANCIAL SECRETARY PAUL CHAN