Hong Kong must bolster economic recovery amid rising interest rates, US banking woes: finance chief Paul Chan

Hong Kong needs to bolster its economic recovery in the face of rising interest rates and market uncertainty stemming from US banking issues, the city’s finance chief has said, who anticipates stronger performance this year.

Financial Secretary Paul Chan Mo-po on Sunday said he was optimistic about the city’s economy this year because of an influx in visitors and increased spending by locals, but recovery was still in the early stages.

“If the external market conditions do not deteriorate sharply, Hong Kong’s economy is expected to experience a quarter-by-quarter improvement, with our series of measures to support internal demand and the continued enhancement of imports and exports with mainland China,” he said in his weekly blog.

He pointed to a year-on-year economic growth of 2.7 per cent in the first quarter of this year resulting from a rebound in food, catering and retail industries following the return of tourists.

Economic growth in the first quarter ended a contraction over the previous four quarters.

During the first three months of this year, total revenue for restaurants jumped 82 per cent year-on-year to HK$27.56 billion – the highest amount in more than three years.

Hong Kong’s retail sales jump by record 40.9 per cent in March

Chan said part of the increase was due to a low base effect as the city sank to its lowest ebb in the first quarter of last year when the fifth wave of the coronavirus pandemic led to tightened social-distancing rules.

He added a rebound was recorded in retail sales, private consumption expenditure, service exports and fixed investment in the first quarter, but overall merchandise exports saw a decline of 18.7 per cent due to a weak external environment and other factors.

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“These figures reflect that Hong Kong’s economic recovery is still in its initial stage and needs to be strengthened,” he said.

Citing the decision of the United States’ Federal Reserve to raise interest rates by a quarter percentage point last week, Chan said uncertainty in the global economy had added pressure to the city to strengthen its nascent recovery.

“Although the market expects the end of the rate hike cycle, the interest rate will remain high for some time,” he said. “In addition, market anxiety has been exacerbated by the recent financial troubles of several US banks, leading to more uncertainty in the external economy.”

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But the finance chief expressed confidence over Hong Kong’s economy, saying it would enjoy a better performance this year compared with last year.

While unveiling his annual budget blueprint earlier this year, Chan said the city’s gross domestic product was expected to experience growth ranging from 3.5 per cent and 5.5 per cent in 2023 compared with the previous year. In 2022, GDP shrunk 3.5 per cent, reflecting the economic repercussions of the pandemic.

The government has been introducing a series of measures to stimulate spending and improve economic recovery since April such as distributing another round of consumption vouchers and launching its “Happy Hong Kong” campaign, which features food fairs and other activities in the coming 10 months.

The latest official data shows Hong Kong’s exports to mainland China were down 9.8 per cent year-on-year in March, while those to the European Union and US jumped 15 per cent and 13.8 per cent, respectively.