(Bloomberg) -- Hong Kong’s economy will likely grow more slowly than previously expected both this year and next as challenges from China’s slowdown and the impact from elevated interest rates weigh on the financial hub. 

Economists slashed their expectations for gross domestic product growth in 2023 to 3.3% from an earlier forecast of 4%, according to the median estimate in the latest Bloomberg survey of economists. Growth in the fourth quarter of this year is expected to reach 4.8% year-on-year, worse than a projection of 6.5% in the last poll, taken in September. 

Next year’s outlook is also dimmer, with GDP seen expanding 2.7% in 2024 compared to this year. That’s lower than an earlier estimate of 3%.

 

“Hong Kong would rue many missed opportunities for a lackluster 2023 where its recovery out of the pandemic has not even put annual GDP past the pandemic peak of 2021,” said Heron Lim, economist at Moody’s Analytics. The economy grew 6.4% that year, recovering from 2020’s 6.5% plunge.

The downgrades reflect a muted post-pandemic recovery as growth has been weak despite a boost this year from a tourism revival, and suggest that tough times are still ahead for the Asian financial center. 

The 2023 cut brings the survey forecast in line with an official projection by the Hong Kong government, which sees the economy growing 3.2% this year. In lowering its growth forecast last month, authorities cited challenges in the external environment, including rising geopolitical tensions and tight financial conditions that are weighing on exports and consumer confidence.

Lim said the city’s consumption and investments may pick up next year as pressure from high interest rates is seen easing eventually. 

Hong Kong’s rates move in lockstep with the US Federal Reserve’s given the local dollar’s peg to the greenback, meaning the city has hiked rates alongside the Fed’s aggressive tightening cycle. While the US central bank is expected to start cutting rates at some point next year, rates are still expected to be elevated for some time. 

“Risks abound, with US-China relations and the Fed keeping interest rates higher for longer top of mind,” Lim said.

Moody’s Investors Service — which is separate and run independently from the Moody’s Analytics research firm — on Wednesday lowered its outlook on Hong Kong’s credit rating to negative from stable, though the city’s long-term underlying rating was affirmed at Aa3.

That came a day after the agency cut the outlook for China’s credit rating. Moody’s cited the tight trade and financial links between the two economies’ credit profits as the main reason for the changed outlook.

©2023 Bloomberg L.P.