Hong Kong's economy has shown resilience this year, achieving a strong start with first-quarter growth of 5.9%, the highest quarterly expansion in five years.
Exports have remained robust, domestic demand has strengthened, and growth drivers have become more diversified.
Since the military conflict in the Middle East erupted in late February, energy production and major shipping routes have been severely disrupted, leading to a sharp rise in international energy prices, heightened global inflation concerns, increased financial market volatility, and elevated global economic downside risks.
The International Monetary Fund (IMF), in its April reference scenario assuming a limited duration and scope for the Middle East conflict, revised down its 2026 global growth forecast by 0.2 percentage points to 3.1% and raised its inflation forecast by 0.6 percentage points to 4.4%.
The IMF noted that while AI-driven technological upgrades and investment offer potential for upside growth, current risks are skewed to the downside due to Middle East geopolitics, and a prolonged or escalated conflict would further amplify the impact on the global economy.
Despite international instability, the global economy remained resilient in the first quarter, with modest growth in the US and Eurozone, while several Asian economies grew, driven by robust exports and manufacturing.
US and European economies continued to expand in Q1, with labor markets largely stable recently, but business and consumer sentiment has turned cautious as inflation has risen significantly.
US overall PCE inflation accelerated from 2.9% at the start of the year to 3.8% in April, with core PCE inflation also rising to 3.3%, both above the Federal Reserve's 2% target.
The Fed has held its policy rate steady this year, and with rising inflation and ongoing Middle East uncertainty, bond markets have been quite volatile; markets currently expect no Fed rate cuts before year-end, and if sustained conflict fuels inflation, there is even a chance of a 25 basis point hike.
As of May 29th, market expectations for a 25 basis point hike by the end of 2026 exceed 50%.
Asian economies recorded varying degrees of growth in the first quarter.
Buoyed by strong global demand for electronics and tech products driven by booming AI-related investment, the region's strong goods export growth momentum continued in April.
However, due to Middle East conflict disruptions to global energy and logistics supply chains, April manufacturing PMI readings across regional economies were mixed, and rising energy prices also pushed up inflation.
Against this global backdrop, Hong Kong's economy had a strong start this year, with Q1 growth of 5.9%, the highest quarterly expansion in five years, exports remaining robust, domestic demand strengthening, and growth drivers becoming more broad-based.
Seasonally adjusted, the economy grew 2.9% quarter-on-quarter in Q1, indicating accelerating growth momentum and representing the largest quarter of economic acceleration in nearly five years.
On external trade, benefiting from the aforementioned vibrant intra-Asian trade, overall goods exports rose 23.7% in real terms in Q1, marking ten consecutive quarters of growth.
Exports to all major markets continued to rise significantly.
Service exports continued to expand solidly across the board in Q1, extending the consecutive growth trend since Q4 2022.
In addition to stable financial market performance, visitor arrivals to Hong Kong grew 17% in Q1 to over 14.3 million, setting another post-pandemic quarterly record and driving robust growth in tourism service exports.
On the domestic demand front, private consumption expenditure growth accelerated to 4.9% in Q1, the fastest pace in two and a half years, reflecting a more solid consumption recovery underpinned by factors such as rising labor income and stable asset markets.
Retail sales value rose 12.1% in the quarter, while restaurant receipts improved slightly by 1.1%.
Overall investment expenditure continued to expand at a double-digit pace in Q1, rising 17.7%, also the fastest in two and a half years, primarily benefiting from active property transactions and a sharp increase in spending on machinery, equipment, and intellectual property products, with private sector spending growth particularly notable at 57.9% year-on-year.
Latest data shows Hong Kong's economy remained resilient entering the second quarter.
The value of total goods exports in April accelerated further to a year-on-year increase of 42.9%, continuing to be driven by AI-related electronics exports.
The share of AI-related goods export value in total goods exports rose from nearly 60% in 2022 to 70% in Q1 2026, and after surging 41.5% in Q1, rose another 54.3% in April.
Exports to Mainland China continued to rise 40.7%; exports to ASEAN soared 66.5%; exports to other markets like the US and EU also recorded solid growth of 37.5% and 24.4%, respectively.
Furthermore, visitor arrivals to Hong Kong in April continued to rise 10% year-on-year, with an 8% increase during the May Golden Week.
The labor market improved slightly.
The seasonally adjusted unemployment rate for February to April was 3.7%, a further slight decline from 3.8% in Q4 2025.
Employment income continued to grow, with the average monthly employment income for full-time employees rising 5.6% year-on-year in nominal terms in Q1.
Inflation remained mild, though it accelerated slightly in recent months amid rising international oil prices.
The underlying consumer price inflation rate accelerated from 1.3% for the first two months combined to 1.6% in March and April, with the increase in energy-related and transport components rising from 1.0% for January-February combined to 2.3% in March and 3.3% in April, while price pressures in other major components were mild.
Interest rates have generally trended lower this year.
Following the outbreak of conflict in the Middle East, Hong Kong dollar funding demand related to capital markets weakened, and short-term HIBOR saw a more pronounced decline in March.
Although short-term interbank rates have edged up over the past month or so, they remain lower than at the end of last year.
Total bank deposits increased 2.4% in the first four months of the year, with Hong Kong dollar deposits up 3.2%.
On the Hong Kong dollar exchange rate, the persistent negative interest rate differential between the Hong Kong dollar and the US dollar has spurred carry trades selling the Hong Kong dollar, leading to a weaker Hong Kong dollar spot rate against the US dollar in the first five months of the year.
The banking system's aggregate balance stood at HK$54 billion at the end of May, similar to the level at end-2025.
Regarding the Hong Kong stock market, the Hang Seng Index was volatile in Q1, retreating after hitting a four-and-a-half-year high in January due to the Middle East conflict, and recouping some losses entering Q2 as market sentiment stabilized somewhat, closing at 25,182 points at the end of May, down 2% from the level at end-2025.
Trading remained active, with average daily turnover exceeding HK$270 billion year-to-date, higher than the full-year 2025 average of HK$250 billion.
Fundraising activity also remained strong, with funds raised via IPOs in the first four months increasing sixfold year-on-year to HK$1,514 billion, ranking first globally.
A consultancy report shows Hong Kong's cross-border wealth management asset size grew 10.7% year-on-year in 2025 to approximately HK$23 trillion, surpassing Switzerland to become the world's number one cross-border wealth management center.
The property market continued to improve, with both prices and transaction volumes rising.
Residential transactions remained active, rising further to over 7,000 in April, the highest in two years; property prices rose 3.6% in 2025 and continued to rise another 5.7% in the first four months of 2026, with rents also rising 4.2% and 1.4% over the same periods, respectively.
In the non-residential property market, the pace of recovery in Q1 was uneven: office price declines narrowed to 1.0%.
Rents largely returned to end-2025 levels.
Retail shop prices still fell about 3.7% over the same period.
Rents were largely flat, while rents and sales for flatted factory buildings stabilized.
Looking ahead, the trajectory of the Middle East conflict remains highly uncertain.
While its impact on Hong Kong's overall economy has been relatively limited so far, it has pushed up international oil prices and inflation pressures.
The ceasefire agreement basis between the US and Iran is not solid, and if tensions escalate again, it is expected to increase global financial market volatility and weaken external demand, posing downside risks to both global and Hong Kong's local economic prospects.
However, strong global demand for advanced electronics and AI-related products is expected to support goods export performance.
Simultaneously, supported by continued robust inbound tourism, vibrant cross-border financial activities, and stable demand for commercial services, service exports should remain firm.
Coupled with continued expansion in Hong Kong's domestic demand, the territory's economic outlook remains broadly resilient.
Although Hong Kong's Q1 economic growth was stronger than expected, considering external uncertainties and potential adverse factors, the government maintained its full-year 2026 growth forecast at 2.5% to 3.5% in May.
On inflation, rising international oil prices should continue to feed into fuel-related components of consumer prices, but Hong Kong is a service-oriented economy with low energy dependence, and stable energy supplies from the Mainland also help cushion external shocks.
Taking the above factors into account, the government in May raised its 2026 forecasts for underlying and headline consumer price inflation rates from 1.7% and 1.8% to 2.5% and 2.6%, respectively.
The Hong Kong government has introduced short-term targeted measures to alleviate the impact of rising international oil prices on relevant sectors and will continue to closely monitor developments.
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