HONG KONG • Stretched property valuations mean Hong Kong's economy is vulnerable if interest rates rise faster than expected, the International Monetary Fund said.
In its annual assessment of the Asian financial hub, the IMF identified three main risks - rising interest rates and potential global market volatility, China-linked stress, and a possible downturn in the property market.
With the US Federal Reserve tipped to raise rates next week for only the second time in a decade, the higher borrowing costs will automatically flow through to Hong Kong, which effectively imports US monetary policy because its currency is pegged to the greenback.
"A steeper-than-expected US rate cycle or tightening of global financial conditions may have a bigger-than-usual adverse impact against a backdrop of high household debt with floating-rate mortgages," the IMF said in its report.
Hong Kong moved suddenly last month to cool prices in the world's least affordable property market, raising stamp duties for all except first-time local buyers. The property market peaked in September last year, before economic uncertainty and slowing demand from mainland buyers sent prices lower. Since March, prices have inched back to near record levels by November.
The IMF also flagged risks from market volatility linked to British and European banks, given Hong Kong's role as a major base for global lenders, and highlighted the risk of exposure to China's slowing economy.
Hong Kong's economy has proved more resilient than many feared, shaking off a contraction at the start of the year as a steady job market underpinned demand. The IMF expects Hong Kong to grow by around 1.5 per cent this year and 1.9 per cent next year.