Why Hong Kong’s economy is set for a slowdown

For the past few decades, Hong Kong has enjoyed the dual benefits of high-powered development in mainland China and the freedom of a ‘Western-style’ market economy. However, as China’s economic growth continues to slow down, what does this mean for Hong Kong’s economy and investors?

 

Retail sales are falling

In recent times, tourists from the Chinese mainland have brought their new wealth to Hong Kong’s malls and markets. However, 2015 has seen seven straight months of decline in retail sales – Reuters reports a 6.4% drop in November compared to last year. This is widely attributed to China’s anti-corruption crackdown and Chinese shoppers taking their renminbi to other destinations like Japan, encouraged by a weaker Japanese yen and more flexible visa restrictions for Chinese travellers.

 

Currency strength can mean retail weakness

The Hong Kong dollar is a strong currency – mainly as a result of its peg to the US dollar, as policy-makers believe this close alignment helps keep the island’s economy stable. But if Chinese shoppers can buy designer goods more cheaply in places like Japan, the Hong Kong dollar’s strength may be contributing to its economic slowdown. Retail figures show the island’s sales of luxury goods have already fallen by 22.9% in September from the previous year.   

 

Property bubble ready to pop?

The strong HK dollar has had another effect. Property prices in the territory have doubled since the financial crisis of 2008 – driven by currency strength, low interest rates, the island’s good job market and its comparative stability. However, if Hong Kong’s economy is slowing, people’s ability to pay their mortgages could be under threat. This could be one reason for the sharp 41.7% year-on-year decrease seen in property sales in November.

 

US interest rate rise heralds a new era

Following the US Fed’s decision to raise its base rates from 0.25% to 0.5% – its first hike since June 2006 – the Hong Kong Monetary Authority immediately followed suit, raising Hong Kong’s interest rates from 0.5% to 0.75%. While the rise seems small, it is important symbolically, as it signals that the decade of cheap money could be over. Credit will be more expensive and those all-important mortgage repayments will be more difficult to meet.

 

What does this mean for investors?

Although Hong Kong’s dollar is strong because it’s pegged to the US dollar, the island’s economy is completely different to that of the US. So if US interest rates continue to rise, this could lead to an increase in hot money outflows from Hong Kong – as investors would get a higher rate of return from saving in a US bank. Despite this, Hong Kong’s GDP grew by an unexpected 2.3% in Q3 and unemployment remains low, leaving many analysts to believe the island could very well weather the gloomy economic forecasts.


As Money Cloud readers will know, developments in any country can impact international money transfer. So keep up to date with the latest industry trends at The Money Cloud, or if you’re looking to move your money following Hong Kong’s interest rate rise, check out our comparison tool for the best rates. 

Comparison tool

Sending Currency
Buying Currency
Send USD Receive

Latest Articles

Chloe Rogers

Your site is top, thank you. I was going to use my bank and but came across you on Forbes site, I am glad I did. I went on and used Torfx very good service got the rate right, saved me money compared to many others you list, they even helped me get an aussie bank account. Once again thank you for help!

V Piccciani

Everything went great. The money is in the account in Brazil exactly the amount we agreed, very fast and safe, thank you very much for the service
regular overseas payments

MAKING REGULAR OVERSEAS PAYMENTS FOR YOUR BUSINESS

If your business makes regular overseas payments, the costs associated with fees and exchange rates can mount up. We show you the best methods for saving money and taking advantage of superior exchange rates. Demonstrate the considerable savings your business can make over time.

International payments - overseas money transfers

INTERNATIONAL MONEY TRANSFERS FOR BUSINESSES

As a business, making global payments involves many risks, including exchange rate risk. If you are making regular transfers the cumulative costs due volatile exchange rates can be excessive. We can empower you to make International Payments cheaper and easier for your business.

Market Insights

Sign up for our newsletter.

Thank You for subscribing to our Newsletter

You have successfully signed up to our Newsletter