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Speaker 1: And let's get to our guess now. Andrew Finnel is

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Speaker 1: head of Greater China Sovereigns at Fitch Ratings in our

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Speaker 1: Hong Kong studio to discuss Hong Kong's economy. So, Andrew,

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Speaker 1: we're awaiting the GDP reports, the final one for April

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Speaker 1: to June. They are not expected to be good at

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Speaker 1: Bloomberg survey showing that the city's economy may not expand

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Speaker 1: at all this year. We do have this reduced quarantine,

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Speaker 1: but is it really enough to turn the down here, Hi,

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Speaker 1: the good morning, thanks for having me. Well, we certainly

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Speaker 1: don't think it's going to be sufficient. We've just knocked

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Speaker 1: down our growth forecast for this year. We now see

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Speaker 1: Hong Kong's economy contracting by zero point five percent in

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Speaker 1: twenty two uh and we see recovery next year, but

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Speaker 1: really mostly on the base effect. And so in our view,

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Speaker 1: these reduced quarantine measures, which knox a mandatory hotel quarantine

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Speaker 1: down to three days plus seven days of follow up testing,

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Speaker 1: are really not going to stimulate tourists coming here or

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Speaker 1: or business travelers, certainly short term business travelers coming to

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Speaker 1: Hong Kong. And at the same time it was yesterday

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Speaker 1: right that we had data on the decline in population

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Speaker 1: by a record amount more than a hundred and twenty one.

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Speaker 1: I think this is what the third straight year of declines,

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Speaker 1: the biggest drop in at least six decades. I mean,

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Speaker 1: people are fleeing and and what is this going to

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Speaker 1: mean for the overall economy. Well, it's not particularly uplifting

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Speaker 1: news that that's certainly true, and I would actually go

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Speaker 1: as far as argue that it's worse than the headline suggests.

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Speaker 1: And now we don't have a detailed breakdown during the

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Speaker 1: period of data released yesterday, But what we do know

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Speaker 1: from the recent some of the recent census data that

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Speaker 1: has been published is that if you look at the

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Speaker 1: age breakdown and composition of the declines, it's overwhelmingly people

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Speaker 1: in the working age population, so people below the age

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Speaker 1: of sixty. So what what you have um sort of

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Speaker 1: beneath the surface is working age people leaving the city,

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Speaker 1: uh and elderly people staying here. Obviously, working age people

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Speaker 1: are the ones that drive growth, right productivity, and so

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Speaker 1: this I think in our view is certainly not positive

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Speaker 1: for medium term growth potential in Hong Kong and also

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Speaker 1: is going to add to these looming fiscal challenges related

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Speaker 1: to population aging that that Hong Kong is going to

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Speaker 1: be facing over the coming years. How much of all

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Speaker 1: of this really threatens Hong Kong's financial hub. Well, it's

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Speaker 1: all they're all very real potential threats. I think what

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Speaker 1: we're waiting for at at Fitch from a ratings perspective

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Speaker 1: is how it all crystallizes, or if it crystallizes into

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Speaker 1: sort of a very tangible erosion in Hong Kong's competitiveness

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Speaker 1: as a international financial hub. What we have so far

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Speaker 1: from the data from h K e x as a

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Speaker 1: decline and some of the financing flows in equity and debt.

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Speaker 1: A lot of that though, does seem to be short

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Speaker 1: term spillovers from the challenges we're seeing in China's economy

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Speaker 1: uh and and so the inability, for example, the property

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Speaker 1: developers to raise funds here in Hong Kong for quite

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Speaker 1: a number of months. So I'd say at the moment,

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Speaker 1: it's still very much an involving story. It's something that

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Speaker 1: we're going to follow, and if it crystallizes into some

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Speaker 1: of the risk that people are are are noting and

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Speaker 1: that we're following, well that could be potentially negative for

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Speaker 1: the rating, but it's much too early to tell. Well,

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Speaker 1: you mentioned the property market. Give me a sense of

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Speaker 1: your outlook for overall property, but I'm maybe more concerned

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Speaker 1: with the situation as it relates to public housing and affordability.

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Speaker 1: Where do you have how do you come down on that?

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Speaker 1: What's your view? Well, there's clearly very severe housing shortages

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Speaker 1: in Hong Kong. I think that's all very well documented.

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Speaker 1: I think from a financial sector sustainability or UH systemic

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Speaker 1: risk perspective, we're not overly concerned at the moment, even

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Speaker 1: though many people are calling or forecasting very sharp declines

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Speaker 1: and property prices. And that's because if you look at

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Speaker 1: the headline numbers only, I think one out of three

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Speaker 1: people actually carry a mortgage here, so uh, they're not

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Speaker 1: really having to serve as debts. So the rise in

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Speaker 1: interest rates is not necessarily going to impact a very

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Speaker 1: large proportion of homeowners. And the second part is that

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Speaker 1: when people do take on mortgages in Hong Kong, it's

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Speaker 1: compared to other developed markets. I mean, the equity buffers

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Speaker 1: are quite substantial, so we see LTVs around fifty or

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Speaker 1: sixty percent, which means there's a huge buffer for banks

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Speaker 1: there at the initiation of the mortgage. When we look

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Speaker 1: at it mobility, I mean, we talked about the brain drain,

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Speaker 1: but what about the fact that it's been so difficult

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Speaker 1: to get into the mainland too. I mean that cross

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Speaker 1: border mobility very much impacting growth too. Yeah, these are

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Speaker 1: all very real factors. I mean, Hong Kong is a

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Speaker 1: small it's a small place. Uh. It relies on mobility,

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Speaker 1: connectivity to the rest of the world and to the

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Speaker 1: rest of the country, and all these factors are having

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Speaker 1: real spillovers to activity. We For example, I've been following

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Speaker 1: the consumption statistics. Sure, the the voucher program that's going

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Speaker 1: to be already in the works. It's already been distributed

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Speaker 1: and it's going to be continue to be distributed. It's

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Speaker 1: going have a small boost of consumption over the coming months.

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Speaker 1: But there's a base effect there too, because there was

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Speaker 1: a consumption of auctor program last year. Uh. And so

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Speaker 1: it's it's it's very hard unless there are sort of

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Speaker 1: very unless there's a discontinuation of the policies that are

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Speaker 1: really hampering growth here. In other words, the restrictions on mobility,

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Speaker 1: the social restrictions, across border mobility. Uh, it's all it's

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Speaker 1: all going to be very hard to come up with

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Speaker 1: a very robust outlook for the Hong Kong economy. Go ahead, No,

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Speaker 1: I finished that thought before I asked the next question. Well,

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Speaker 1: I was just gonna say. I mean, one analogy that

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Speaker 1: sort of popped in my head last night was, I

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Speaker 1: mean I sort of see Hong Kong's economy kind of

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Speaker 1: like a you know, it's a it's a very competitive runner,

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Speaker 1: you know, maybe a sprinter, and then you tell you

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Speaker 1: tell the sprinter, Okay, well you got to wear these

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Speaker 1: kneepads and these shoulder pads and this helmet, uh, to

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Speaker 1: protect yourself, and then uh, you know, on race day

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Speaker 1: you gotta wear a mask. Well, as talented as this sprinter,

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Speaker 1: maybe a time you had all those things, it's gonna

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Speaker 1: it's gonna hobble their performance on the on the race day.

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Speaker 1: So that's how sort of how we see the sense metaphor.

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Speaker 1: So we know that inflation globally, I mean it's I

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Speaker 1: guess at different levels of intensity and different parts of

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Speaker 1: the globe. But here in the States we're dealing with

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Speaker 1: pretty hot readings that have kind of pushed the fit

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Speaker 1: into adopting a very hawkish stance. We know that we

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Speaker 1: know the path of the dollar recently, and we know

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Speaker 1: that the Hong Kong dollar has got a peg to

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Speaker 1: the US dollar. Is there going to be a great

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Speaker 1: deal of stress for the monetary authority? Do you think

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Speaker 1: to defend the currency going forward? Uh, we don't really

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Speaker 1: think so, to be honest, there's quite a lot of

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Speaker 1: financial buffers in Hong Kong at the moment. There, for example,

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Speaker 1: that the authorities do have to depend defend the peg

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Speaker 1: at the stated convertibility band it's trading near that they

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Speaker 1: have had to intervene. But the buffers that the Hong

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Speaker 1: Kong authorities have to defend that peg are are are

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Speaker 1: very substantial, and so we don't really see that as

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Speaker 1: a threat to the peg in anyway. What it is

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Speaker 1: going to do gradually is increase local interest rates because

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Speaker 1: of the mechanism that you know, you reduce the aggregate

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Speaker 1: balance when you intervene to keep the peg within a

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Speaker 1: certain band, and so that that tightens liquidity um here

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Speaker 1: in the city. Andrew, great to have you on love

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Speaker 1: that analogy to Andrew Fennel's head of Greater China, sovereign

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Speaker 1: that Fitch ratings with us in our Hong Kong studio

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Speaker 1: as we look ahead to the revised GDP print from

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Speaker 1: Hong Kong later this afternoon local time,