Hong Kong Economic Forecast

The economy returned to expansion in year-on-year and quarter-on-quarter terms in Q1 and significantly overshot market expectations, boosted by surging visitor arrivals amid the removal of travel restrictions at home and in mainland China. Looking at the expenditure breakdown, double-digit growth in private consumption and services exports powered activity. In contrast, merchandise exports continued to decline sharply amid weak overseas goods demand. Turning to Q2, available data suggests ongoing strong momentum. In April, air passenger arrivals were up over 10% from March, while the private-sector PMI remained comfortably in expansionary territory. Moreover, the recent disbursement of consumption vouchers by the government to residents should be benefiting household spending. That said, tighter financial conditions will be tempering the upturn in domestic demand.

Inflation ticked down to 1.6% in March, which followed February’s 1.7%. March’s reading marked the lowest inflation rate since May 2022. Inflation should tick up later this year on rebounding visitor arrivals, fiscal stimulus and the removal of domestic Covid-19 restrictions, but will be low in comparison with the inflation rates of Asian peers.