Hong Kong Economic Outlook: Standard Chartered Bank predicts three rate cuts by the Federal Reserve this year, causing confidence among small and medium-sized enterprises to drop to a two-year low

According to the latest information from the Wise Finance APP, Liu Jianheng, Senior Economist for Greater China at Standard Chartered Bank (Hong Kong), said that due to uncertain factors, the GDP growth of Hong Kong is expected to be maintained at 2.6% for the whole year, which is relatively low. Regarding the interest rate cut expectations, he anticipates that the Federal Reserve will cut interest rates three times this year, totaling 75 basis points with 25 points cut each time. It is expected that the pace of interest rate cuts will accelerate in the first half of next year, with a total reduction of 125 basis points, and another 50 points cut in the second half of the year, indicating an overall room for interest rate cuts. He also mentioned that overall, various industries will benefit from interest rate cuts, with real estate, catering, and accommodation industries being more favorable. The Productivity Bureau and SME Support announced the results of the Standard Chartered Hong Kong SME Leading Business Index survey for the third quarter of 2024, with the comprehensive business index falling by 4.8 to 42.5, the lowest level since the third quarter of 2022. All five major sub-indices declined, with the most significant drops seen in the global economy, profit performance, and business conditions, indicating a decrease in confidence among local SMEs in business turnover for this quarter. In terms of the comprehensive business industry index for this quarter, among the 11 major industries, only the construction industry showed a slight increase (+1.8). The remaining 10 industry indices all recorded declines, with the real estate industry experiencing a significant drop to 37.3 this quarter after a growth of over 10 points in the previous quarter. Additionally, the information and communication industry (47.9) and the financial and insurance industry (44.2) both recorded declines of 9.8 and 7.5 respectively, falling below the neutral level of 50. Liu Jianheng pointed out that the latest Standard Chartered SME Index for this quarter shows that the business confidence of Hong Kong SMEs remains weak, and this pessimistic sentiment may persist in the face of more challenges in the future, putting pressure on Hong Kong's growth prospects in the second half of the year. In terms of external factors, the sub-index of the global economy has fallen below 30, reflecting the cautious attitude of SMEs towards the uncertainty of the U.S. presidential election and the slowdown in the mainland economy. This special survey explores the impact of a high-interest environment on Hong Kong SMEs. The survey shows that 56% of the surveyed SMEs believe that a high-interest environment has led to a decrease in customer spending ability, especially in the retail, accommodation and catering, and real estate industries. However, 75% of SMEs stated that they have not reduced investments due to the high-interest environment, reflecting weaker customer demand under high-interest conditions but no impact on SMEs' investment plans. In terms of operations, 29% of the surveyed SMEs stated that a high-interest environment has a negative impact on the company's supply chain management. The reasons for the impact include the need to find lower-priced suppliers, reduce inventory to lower costs, and increase inventory costs. On the other hand, 32% of the surveyed SMEs stated that a high-interest environment has a negative impact on the company's cash flow, mainly due to delayed customer payments, reduced sales, and increased debt costs. Regarding financing, 18% of the surveyed SMEs indicated a certain degree of difficulty in borrowing or obtaining new funds, with tightened borrowing conditions, increased bank lending rates, and reduced credit limits being the reasons for SMEs feeling difficulty in borrowing. Zhang Zichang, Chief Innovation Officer of the Productivity Bureau, mentioned that the economic recovery in Hong Kong in the third quarter of this year is slower than expected, with over half of the surveyed companies reporting a decrease in customer consumption willingness. The service industry and other tertiary industries have been particularly impacted. However, as high as 92% of SMEs will continue to maintain or even increase overall investments. In addition, nearly 20% of the surveyed SMEs expressed a certain degree of difficulty in borrowing or obtaining new funds