Rising borrowing costs is pushing the brakes on passenger car sales.
New passenger car sales in Hong Kong is projected to slow down to 4.3% to 41,000 units in 2018 as consumers are faced with rising borrowing costs and muted household spending, according to BMI Research.
As the Fed moves to tighten its monetary policy, Hong Kong has to correspondingly raise borrowing costs due to its long-standing peg with the US dollar which is set to dash the hopes of residents aiming to purchase a car this year.
“We expect the US Federal Reserve to continue on its rate hiking cycle, raising its Feds fund rate another three times to a range of 2.00-2.25% in 2018. This will therefore see interest rates in Hong Kong end 2018 at 1.63%, up from an estimated 0.88% in 2017. We therefore expect these rising borrowing costs to weaken consumer appetite for credit and, in turn, auto loan demand,” BMI added.
Whilst household spending is projected to grow over the coming quarters after steadying at 6.3% YoY in Q4, the strong momentum is unlikely to be sustained as private consumption remains muted against a slowing economic outlook.
Muted private consumption is likely bring about a negative wealth effect on consumers and their spending patterns as Hong Kongers might choose to delay car purchases this year in favour of more beneficial buying conditions in the future.
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