Hong Kong economy growth beats expectations on brisk exports

Hong Kong’s economy grew faster than expected in the second quarter, pointing to some stability in key sectors despite challenges in real estate and retail.

Gross domestic product expanded 3.3% in the three months ended June from the prior year, according to advance estimates from the Census and Statistics Department Wednesday. That’s higher than a median estimate of 2.7% and exceeded even the most bullish forecast among economists surveyed by Bloomberg News. 

The data signals resilience in the region’s financial hub after several years of pressure from the pandemic and high borrowing costs. Increasing trade and capital flows from mainland China into the city have helped buoy growth so far this year. 

The better-than-expected uptick may help the government achieve its full-year growth target of 2.5% to 3.5%. It followed strong first-quarter expansion that was revised up to 2.8% from 2.7%.

Exports grew at a double-digit pace for the last three straight months, driven by strong global demand. But the outlook remains challenged by the real estate sector downturn and a slowing economy in China, the city’s largest trading partner. 

“The economy should continue to grow in the remainder of the year, but performance of the different economic segments may vary amid uncertainties on various fronts,” a government spokesperson said in a statement accompanying the release. The person cited geopolitical tensions, trade conflicts, and US interest rate trajectory as potential headwinds.

Hong Kong’s economy is one of the slowest growing in the region. Analysts surveyed by Bloomberg expect growth will dip to a 2.7% pace this year from 3.3% in 2023, the only developed economy in Asia forecast to slow except Japan.

On a quarterly basis, GDP expanded 0.4% from the first quarter, according to the statement. 

Goods exports and imports of services rose the most among GDP components from the prior year. Fixed capital formation, a category that includes the total value of investment spending, also increased at a faster pace. 

Private consumption fell in the quarter for the first time since the third quarter of 2022. Spending has been restrained by a strong currency, pegged to the US dollar, and weaker sentiment. The government said the changes in spending habits of locals and tourists and the strong Hong Kong dollar “may continue to pose challenges.”

Real estate has been a particular sore spot, as demand remains weak with higher mortgage rates. Residential property prices have fallen to their lowest since 2016, increasing the risk of homebuyers finding themselves under water on loans. Office buildings are finding it difficult to attract tenants.

The dour mood and more frugal tourists have also kept a lid on retail spending, with sales falling for a third straight month in May, the longest streak since 2021. Many locals also spend across the border in Shenzhen and other mainland cities where goods and services tend to be cheaper. 

Earlier this week, Hong Kong’s Financial Secretary Paul Chan said the economy continues to grow and that lower interest rates later this year would support investment.