Lower rates not enough to halt Hong Kong’s slowing economic growth: Natixis

Ongoing property woes a growing issue for its largest source of tax income.

Whilst Hong Kong is expected to benefit from lower rates in 2024, economic growth will still be slower than a year prior, says Natixis Asia Research.

Tax is one major issue that Hong Kong will likely face in 2024. “In the medium run, Hong Kong’s fiscal situation could become an issue since the largest source of tax income is increasingly uncertain, including land sales,” warned Natixis Chief Economist Asia Pacific Alicia Garcia-Herrero.

“The real estate sector is still suffering. The reduction in the stamp duty may help increase transactions but not necessarily lift prices since structural factors are pushing down demand, especially demographics,” Garcia-Herrero added.

Hong Kong will need to do tax reform or seek external financing for the government's bold infrastructure plan, she said.

Geopolitics is another major issue weighing on the city. 

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“Generally, the number of regional headquarters based in Hong Kong is coming down even if Chinese companies are opening more regional headquarters in Hong Kong,” Natixis Asia Research said in its latest outlook report on Hong Kong.

Notably, semiconductor related trade to China and Russia faces risks.

The good news is that a lower interest rate will help, but China’s growth and financial constraints are a minus, according to Garcia-Herrero.

More also needs to be done to attract and retain local talents in thec city. |Hong Kong also needs to ask if “mainlandization” [is] the best outcome it wants for its positioning in China and to the world,” Garcia-Herrero said.