15 Sep 2023
High-interest rate environment and its impacts on financing options for the construction industry
As we navigate the global economic situation, characterized by uncertainty and weak growth, it is crucial for businesses to evaluate their readiness for these challenging conditions. In July 2023, the US Federal Reserve FED raised the US federal benchmark interest rate to 5.25-5.5%, the highest level in 22 years, and decided to maintain high interest rates in the latest meeting in September. Concurrently, the Hong Kong interbank offered rate (HIBOR) hit a nearly 16-year high, with a one-month interbank rate of 5.43%. Until the end of September, one-month interbank rate logged at 5.39887%, marking a nearly 2-month high, further exacerbating the financial landscape.
Marie Diron, managing director of Moody’s Global Sovereign Risk Department, highlighted rising interest rates, slowing economic growth in China, and financial system pressure as contributing factors to the economic slowdown.
In this gloomy macro environment, local enterprises in Hong Kong, particularly those in the construction industry, are facing significant challenges in securing financing solutions. The construction industry, being capital-intensive, requires substantial funding; however, the high-interest rate environment increases corporate loan costs and severely impacts cash flow, which is crucial for enterprises with extensive capital turnover needs. For enterprises that urgently need funds to complete engineering projects, what methods can be adopted to solve this problem?
Chart 1 : United States Fed Funds Rate from 2023