Hong Kong's Economy Facing Challenges: Between Hope and Reality

Hong Kong's economy continues to face significant challenges, according to an analysis by the Financial Times. Despite expected positive developments from lower US interest rates and a Chinese stimulus package, a noticeable improvement is still awaited. In the first two quarters of the year, Hong Kong recorded economic growth of 2.8 and 3.3 percent, respectively. Economists also forecast positive figures for the quarter ending in September. Nevertheless, the economic outlook for the metropolis is strained by the slowing growth in China, higher US interest rates, and declining tourism figures. A growing mountain of bad debt from distressed properties and businesses is putting pressure on Hong Kong banks and could further burden the economy. Gary Ng of Natixis emphasizes that traditional business models, particularly in financial services, tourism, and real estate, need to be adapted to the new economic realities. The real estate market, once one of the most expensive in the world, is gradually recovering due to new immigration programs from China. Nevertheless, mortgage rates still exceed gross rental yields, leaving many potential buyers in wait-and-see mode. A glimmer of hope came from a Fed interest rate cut of 50 basis points. This could revive the real estate market, even though the supply of new apartments exceeds demand. Despite brisk acquisitions by Sun Hung Kai Properties, the commercial real estate market remains challenged by oversupply. Restricted by the pandemic, the declining presence of foreign companies also led to a decrease in demand for office space. The number of multinational companies with regional headquarters in Hong Kong has dropped significantly, further burdening the market. The downturn in tourism is another issue, with both the length of stay and spending of visitors decreasing. However, the sentiment, particularly during the Golden Week, could brighten up retail. Simultaneously, more and more Hongkongers are heading to nearby Shenzhen for shopping. While some market segments are under pressure, Midea was able to raise around USD 4 billion through a successful secondary listing in Hong Kong. However, confidence in a sustainable revival of the IPO market remains subdued. Heron Lim of Moody's Analytics sees Hong Kong's dependence on China as a challenge at a time when China's growth is weakening. Despite recent economic measures from China, expectations for economic growth remain cautious.