Hong Kong services to rebound as China resumes, UBP states

We're confident that Hong Kong's economy can 'return to expansion' in 2023, says economist

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Hong Kong’s service sector will be the part of economy that sees “the biggest rebound” as borders resume, UBP informed CNBC’s “Squawk Box Asia” onThursday

However, it cautioned that the sector is coming “from a very fragile situation,” provided its contraction in every quarter of2022

“We can’t exclude the possibility of further insolvencies or bankruptcies … even as things do look to improve in the months ahead,” stated Carlos Casanova, UBP’s senior financial expert for Asia.

The most current figures from the Hong Kong federal government likewise revealed the city’s economy contracted by 4.2% in its 4th quarter, the fourth-straight quarter of decreases. Real GDP likewise diminished by 3.5% year-on-year.

“That contraction was much faster than we had anticipated, our forecast was -2.8%,” Casanova included.

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However, the financial expert was positive that Hong Kong’s economy must be “in a position to return to expansion” in2023

“We are seeing signs that there’s been a sequential acceleration in January. So that’s the good news,” stated Casanova.

Factors adding to possible growth

Besides the return of mainland Chinese travelers, Casanova stated “more supportive equity valuations” will assist enhance belief in HongKong

“You also have this expectation that the Fed will hike rates at a more modest pace in 2023 … that at some point you will have a pause,” he discussed.

“And that means that this pro-cyclical headwind that we’ve been experiencing in Hong Kong with tighter monetary policy … will not be such a big drag in the year ahead.”

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Boost for real estate need

Hong Kong’s residential or commercial property sector likewise experienced “subdued sentiment” in 2015 and, like the services sector, is “definitely in a perilous situation as well,” statedCasanova

For example, house costs plunged to a five-year low in October as rates of interest rose loaning expenses.

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“In fact, data on the housing sector earlier this week showed that the number of mortgages that are underwater … is at the highest in 18 years,” Casanova stated.

“But it only takes a very small number of mainland talent to move into Hong Kong in order to at least put a floor on that correction in housing prices.”

Reversing the variety of home loans that remain in unfavorable equity will be “a very important side-effect” from the resuming of borders and healing of domestic need, he included.