August 10, 2018 / 1:16 AM / 2 months ago

Hong Kong's second-quarter GDP growth seen moderating amid trade war, rate hikes

HONG KONG (Reuters) - Hong Kong’s economic growth is expected to have eased in the second quarter after a robust performance in the first three months, while escalating trade tensions and higher U.S. interest rates pose broader risks to growth this year.

An evening view of the financial Central district in Hong Kong, China November 23, 2017. REUTERS/Bobby Yip/File Photo

The average forecast from four economists is for second quarter growth of 4.2 percent from a year earlier, down from 4.7 percent in the January-March quarter, the city’s strongest quarterly performance in nearly seven years.

On a quarterly basis, GDP in January-March expanded 2.2 percent from the previous period. The economists did not provide quarterly estimates.

“We expect economic growth may slow down a bit in the second half,” said Thomas Shik, Chief Economist and Head of Economic Research of Global Markets, at Hang Seng Bank.

“The market will be more concerned about the government’s forecast for the second half of the year.”

The government, which is due to report GDP figures later on Friday, has forecast full-year growth at 3-4 percent.

The financial hub’s trade-reliant economy could get caught in the cross-fire of escalating trade tensions between the United States and China, Hong Kong’s largest trade partner, with trade and logistics industries particularly vulnerable.

The Hong Kong government said in July that HK$130 billion ($16.56 billion) worth of trade could be affected by the trade war, accounting for 3.5 percent of the Chinese-ruled city’s total exports.

While uncertainty over the impact of the trade war has cast a cloud over the outlook, Hong Kong is still bolstered by strong consumer spending amid a tight labor market and solid growth in visitor arrivals, in particular from the mainland.

As one of the most open and free economies in the world, Hong Kong’s growth is highly reliant on capital, trade, tourist and investment flows from China.

Hong Kong has hovered near full employment with a jobless rate of 2.8 percent in April-June, the lowest level in two decades.

The red hot property sector, however, is also seen by analysts as a potential risk, with the financial hub’s top banks set to raise mortgage rates on Monday.

The former British colony tracks U.S. rate moves because its currency is pegged to the U.S. dollar, and higher mortgage rates are expected to pressure borrowers and raise the risk of a slowdown in the real estate sector.

Reporting By Anne Marie Roantree, Donny Kwok and Twinnie Siu; Editing by Sam Holmes

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