Record-high capital inflows and a low interest rate environment will help support consumption and the broader economy this year, according to Hang Seng Bank (0011).
The bank maintained its forecast for Hong Kong's economy to grow 2.5 percent this year, despite subdued domestic consumption and continued external uncertainties related to trade and tariffs.
In a research note, Hang Seng said net capital inflows into the city surged from US$366 billion (HK$2.85 trillion) at the start of 2024 to US$506 billion by April. The fourth quarter of last year already saw inflows surpassing the 2021 peak, reversing a previous downtrend and marking the highest level since records began in 2000.
The influx has boosted demand for Hong Kong dollar assets and helped the city's stock market outperform major global peers this year, the bank said.
The property market may also be benefiting, with home price declines slowing and showing signs of stabilization. Looking ahead, Hang Seng expects the positive wealth effect generated by stronger asset markets to gradually lift consumer confidence.
At the same time, capital inflows are helping to ease local interest rates. While the outlook for the rate differential between Hong Kong and the US remains uncertain, a continued Federal Reserve easing cycle could further lower borrowing costs, supporting both sentiment and overall economic activity.
STAFF REPORTER
