Hong Kong is set to end the year in the midst of a full-blown recession, its finance chief said yesterday, as spiraling interest rates join strict COVID-19 controls in hammering the economy.
“There is a very high chance for Hong Kong to record a negative GDP growth for this year,” Hong Kong Financial Secretary Paul Chan (陳茂波) told reporters, adding that interest rates were being raised “at a pace that was never seen in the past three decades.”
Hong Kong’s monetary policy moves with the US Federal Reserve because its currency, one of the cornerstones of its business hub reputation, is pegged to the US dollar.
The Fed’s hawkish rate hikes, aimed at curbing soaring inflation, come at an especially difficult time for Hong Kong, dampening sentiment when the economy is struggling.
Hong Kong is currently in a technical recession — recording two consecutive quarters of negative growth this year.
The government has adhered to a version of China’s “zero COVID” policy for more than two-and-a-half years, enforcing strict controls and mandatory quarantine for international arrivals.
Chan signaled his support for making travel and business easier.
“The aspects related to the pandemic need to continue to improve in order for us to see larger investments, because people are more cautious in a high-interest-rates environment,” he said.
Business leaders have long been warning that the COVID-19 controls, combined with Beijing’s ongoing crackdown on dissent, have made it harder to attract talent and cut off Hong Kong internationally, especially as rivals reopen.
Hong Kong has seen a net outflow of more than 200,000 people in the past two years, a record population drop.
“Hong Kong should be ahead of other Asian cities, but now there’s a feeling that we’re falling behind and being left isolated,” Eden Woon (翁以登), the new head of the Hong Kong American Chamber of Commerce told the South China Morning Post in an article published yesterday.
“There are people leaving and the problems of retaining talent — all these things add up together and need to be addressed,” he added.
While the Hong Kong Monetary Authority has no choice but to follow the Fed, major banks such as Standard Chartered PLC and HSBC Holdings PLC had resisted that pressure.
However, HSBC yesterday raised its prime lending rate in Hong Kong by 12.5 basis points to 5.125 percent, the bank’s first rise in four years.
Others are likely to follow suit. That could affect the territory’s once hot property sector, with Goldman Sachs Group Inc estimating that prices could slide by about 20 percent over the next four years.
Hong Kong also experienced a recession in 2019 when months of huge and sometimes violent democracy protests rocked the business district.
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