A general view shows residential and commercial buildings in the Kowloon district of Hong Kong, Sept 27, 2018. (ANTHONY WALLACE / AFP)
The biggest risk Hong Kong is facing isn't necessarily Sino-US trade tensions, but a declining property market, says an economist from Deutsche Bank.
Greater uncertainty, rising interest rates and slowing income growth were adding to pressure on Hong Kong's property prices, said Michael Spencer, chief economist of Deutsche Bank.
The city's property prices have fallen 7 percent over the most recent three-month period, said Spencer. He added that another 7-8 percent decline in prices could be enough to prevent private consumption from growing this year.
Meanwhile, Hong Kong billionaire Li Ka-shing, at a CK Asset Holdings’ anniversary gala dinner on Friday, warned that the city’s property market is going to experience fluctuations this year.
The former chairman of CK Hutchison Holdings and CK Asset Holdings told reporters he believed property purchases were acceptable when they were for residents to live in – rather than for speculation.
Spencer said he didn’t believe trade tensions between the world's two biggest economies was a pressing issue affecting Hong Kong's growth.
Although Hong Kong is caught in the middle between Chinese mainland and the US in their dispute, the direct impact on the SAR's economy should be modest, ventured Spencer.
China-US trade flows through Hong Kong account for about 9 percent of exports and Hong Kong only earns a ‘markup’ on these flows – around 15 percent, he said.
Spencer said tariffs would probably cause only about a 5 percent decline in those flows – about 0.2 percent off Hong Kong GDP growth.
Even if trade tensions escalate, the city's GDP would only suffer about 0.5 percent, predicted Spencer. "It's not really that bad," he added.
Deutsche Bank expects the US growth to slow to 2.5 percent this year from 2.9 percent reported in 2018. But the world’s biggest economy is not anywhere near a recession thanks to the absence of important structural imbalances and loose monetary and fiscal policy.
Together with the US, the growth momentum in the eurozone is also expected to remain strong well into 2020, supported by lower unemployment rates and higher inflation.
The Deutsche Bank chief economist is optimistic about global economic outlook as growth has been falling at a moderate and gradual pace, while monetary policy remains supportive.
Central banks are moving very slowly to normalize monetary policy, according to Spencer. He said the Fed is still at least one rate rise away from neutral; it’s likely to have just two rises this year – in June and December, respectively. The European Central Bank is more than a year away from starting to raise its main policy rate.
Moreover, the Bank of Japan is unlikely to consider abandoning its QQE policy for at least another two years.
HONG KONG NEWS