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HK Growth Outlook Gloomy

Hong Kong’s GDP fell to 3.5% in the second quarter.Hong Kong’s GDP fell to 3.5% in the second quarter.

The outlook for Hong Kong’s economy is darkening as rising interest rates are set to slam the city’s property market, while the escalating China-US trade war also poses a danger.

Growth is already slowing and economists are forecasting further weakness, with some projecting expansion in gross domestic product to nearly halve next year, CNBC reported.

Finance and real estate are major sectors in Hong Kong’s estimated $340 billion economy. Close economic and business ties with China will also have a huge impact on its economic outlook, especially since the mainland is poised for a slowdown.

Hong Kong has been a special administrative region of China since the end of British colonial rule in 1997. The territory is economically autonomous and has its own currency, the Hong Kong dollar, which is pegged to the US dollar.

Because of that, monetary tightening by the US federal reserve is pressuring local rates and affecting borrowing costs in the city’s notoriously expensive property sector.

“Recently, the major banks in Hong Kong are starting to hike the mortgage rate so we think this … should weigh on the Hong Kong housing market through 2019,” Minoru Nogimori, economist at Nomura in Hong Kong, told CNBC.

Hong Kong’s GDP growth is expected to slow to 2.3% next year from an expected 4% in 2018 as consumer spending takes a hit, according to a report by Nogimori and his colleague Young Sun Kwon.

Hong Kong’s gross domestic product increased 3.5% in the second quarter from the same period last year, according to official figures released Friday. Economists largely attributed the result to weaker growth in fixed investment.

That figure fell short of analysts’ predictions of 3.9% growth, after the first quarter’s robust expansion of 4.6%.

 

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