Economy in danger of overheating

Over 60% jump in household debt sparks warning from government.

Hong Kong’s economy is at risk of overheating after household debt rose to a record 61% of gross domestic product. This compares to the household debt to GDP ratio of 58% in the third quarter of 2012 and to 59% in the fourth quarter.

Norman Chan, chief executive of the Hong Kong Monetary Authority, said Hong Kong’s consumption and personal-debt growth have consistently outpaced overall economic growth. While the housing market has shown signs of cooling after extra curbs in February, it’s too early to say that it’s in a downward cycle, Chan said.

A declining current-account balance is a “warning signal” that consumption and the economy are at risk of overheating, he said.

Hong Kong home prices, the most expensive among major global cities, last month fell the most in three years after the government imposed its harshest measures yet to curb prices and as lenders raised mortgage rates for the first time since 2011.

Chan’s comments come amid signs the global economic recovery is faltering, with industrial and manufacturing data from China, Japan and South Korea lower than estimates.

In December, the HKMA said the overheated property market is increasingly disconnected from the rest of the economy. Analysts said prices could fall as much as 25 % after the government stepped up measures to curb an asset bubble and banks raised mortgage rates.

Chan cited an “ultra-low interest rate environment” as a factor in the economic risk, noting that when property values appreciate, people think they have more wealth even though they haven’t yet sold the asset.

Chan said the monetary authority will monitor whether any more property measures are needed.