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Hong Kong’s real GDP growth accelerated to 5.9% yoy in Q1 2026, with sequential growth at 2.9% qoq. Growth was supported by robust exports and private consumption. Lower HKD rates have underpinned investment sentiment, credit demand, and capital market activities. External demand benefited from strong AI and electronics cycles, despite ongoing geopolitical uncertainty and elevated energy costs.

Consumption and tourism

Private consumption expenditure grew by 5%. Part of the improvement reflected base effects; also, weaker HKD exchange rate encouraged more mainland tourists to visit. Tourist arrivals increased by 17% yoy, large-scale events. With CNY expected to strengthen to 6.7 against the USD. a softer HKD dollar environment should continue to support tourism inflows and improve retail competitiveness.

Unemployment

A tightening labour market helped consumption. March unemployment rate declined to 3.7%, a 6-month low, with retail, construction, and services sectors extending their downtrends from late-2025 peaks. Improving property market sentiment and the rollout of Northern Metropolis projects should provide support to construction employment.

Investment

Investment momentum strengthened. Gross fixed capital formation (GFCF) surged from 11.7% yoy in Q4 2025 to 17.7% in Q1 2026. System loan growth accelerated from 2.3% yoy in 2025 to 4.7% in March, extending its expansion for an 11th consecutive month. Lower interest rates have driven a broad-based pickup across sectors. Loans to financial, investment and stockbroking companies rose 12.2%, 15.7% and 59.3% yoy respectively, reflecting stronger capital market activity.

Property

Hong Kong’s residential property market is entering a measured recovery, supported by lower mortgage rates. Pent-up demand is being released. Eased property curbs are attracting more Mainland buyers, while policies for non-local students are boosting rental demand. Lower borrowing costs and positive carry encourage investors to return to the market.

Housing prices rose 5.6% yoy in Q1 2026, alongside a 10% decline in unsold units, pointing to improving market balance. The recovery is expected to stay orderly, supported by developers’ flexible pricing strategies that continue to facilitate inventory absorption. Our property team projects housing price growth of 10% in 2026.

Inflation

Inflation edged higher, with CPI rising from 1.4% yoy in Jan–Feb to 1.7% in March. While transportation costs increased from 2.8% YoY to 3.9% in March, driven by sharp rises in diesel and gasoline prices, broader price pressures remain modest. Improving consumption sentiment has helped narrow the contraction in clothing & footwear and durable goods, suggesting limited spillover into core inflation.

Trade

Export performance exceeded expectations, highlighting the city’s external resilience. Real goods exports accelerated from 15.5% in Q4 to 23.8% in Q1. The city’s customs exports rose 32.0% yoy in Q1 2026, reflecting broader export diversification and stronger demand in Chinese electronic goods. Meanwhile, Hong Kong, as China’s re-exports hub, is also benefited from trade truce between China and US.

At the same time, import growth has outpaced exports, leading to a widening trade deficit that drags headline GDP growth. However, this is not particularly worrisome. This largely reflects higher demand for intermediate and capital goods, consistent with firm export orders and improving investment activity, rather than a deterioration in external competitiveness.

HKD rates

HKD rates have moved higher across the curve. 1M HIBOR has rebounded supported by stock market recovery and a 131% surge in Southbound inflows. Continued capital entering Hong Kong via strong IPO activity helps sustain upward pressure on front-end rates. Meanwhile, long-end rates have also risen since mid-April, driven by increased bond issuance from the government, corporates, and quasi-public entities, including infrastructure financing linked to the Northern Metropolis. This supply momentum, combined with higher global term premiums amid inflation and fiscal concerns, is expected to keep upward pressure on long-end yields.

Conclusion

Hong Kong’s recovery broadened in Q1, supported by trade, tourism, and financial markets. While structural constraints—such as high costs and shifting consumption patterns—may limit the pace of expansion, overall growth momentum remains intact. Externally, geopolitical tensions and Middle East developments remain key uncertainties for the global trade outlook. GDP growth is projected at around 3.0% for 2026 with upside risk

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