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Hong Kong’s GDP growth strengthened to 5.2% yoy in Q3 from 4.2% in Q2, with output rising 1.9% qoq. Robust external demand, improving investment sentiment and resilient private consumption supported the expansion.

TRADE

Net exports of goods and services returned to a positive contribution to growth after three consecutive quarters of drag. Real goods export growth accelerated from 28.8% yoy in Q2 to 30.4% in Q3, outpacing import growth of 29.9%. The AI-led electronics upcycle, strong demand for Chinese electronics and easing China-US trade tensions reinforced Hong Kong’s role as a re-export hub for Chinese technology products.

INVESTMENT

Investment momentum strengthened alongside rising credit demand. Gross fixed capital formation (GFCF) growth accelerated from 3.7%yoy in Q2 to 7.3% in Q3. The change in inventory also accelerated further, reflecting re-exporters building inventories in anticipation of future demand. Private sector is gearing up to invest in AI related products. Banking-system loans expanded 8.4% yoy in September, the fastest pace since 2020.

Leding to the information technology sector recorded the sharpest acceleration, with growth rising from 12.7% yoy in Q2 to 29.7% in Q3. This may reflect stronger financing demand for Northern Metropolis AI computing and data centre infrastructure. Meanwhile, loan growth to financial institutions, investment companies and stockbrokers moderated, potentially reflecting softer capital-market risk appetite.

PROPERTY

Residential property prices lost momentum in Q3 following an 11% increase in 1H 2026. Primary and secondary market transactions fell 54% and 37% qoq, respectively, amid tighter Chinese outbound investment controls and higher-for-longer interest rates.

Our property team forecasts housing prices to rise 10–12% in 2026 full year. The upside for the remainder of the year is limited. Lower inventories and slower housing completions should support prices over the medium term, although a sustained recovery will depend on demand stabilising amid investment restrictions and elevated interest rates.

CONSUMPTION AND TOURSIM

Private consumption expenditure growth dropped slightly from 2.9% yoy in Q2 to 2.8% in Q3. Moderating property market momentum and subdued equity market performance, with the Hang Seng Index hovering around 23,000, may have weighed on household wealth effects. Separately, stronger visitor arrivals supported local businesses, although rising outbound travel may have tempered domestic spending.

Mainland visitor arrival growth accelerated from 10.8% yoy in Q2 to 13.6% in Q3, while retail sales growth eased from 7.1% to 5.5%. Over the same period, growth in outbound departures by residents increased from 6.9% to 10.9%. Luxury goods sales, particularly gold-related products, remained strong, while department store and supermarket sales continued to lag.

UNEMPLOYMENT

Labour-market weakness continued to weigh on domestic consumption. The headline unemployment rate rose to 3.9% in September. While Northern Metropolis projects supported construction employment, accommodation and food services recorded the highest sectoral unemployment rate at 6.2%. Elevated unemployment among low- and middle-income households is likely to constrain local spending.

INFLATION

CPI inflation edged up to 1.9% yoy in September from 1.7% in August. Utility and transportation costs rose 12.9% and 5.2% yoy, respectively, reflecting higher energy prices, while broader price pressures remained modest. We retain our full-year CPI forecast of 2.0%. Elevated energy prices and geopolitical tensions remain upside risks to imported inflation.

Implication on HKD RATES

Growth momentum and investment demand are translating into upward pressure on HKD rates, especially at the long end. That said, Mainland capital flows and taxation measures could weigh on Hong Kong asset market sentiment.

On the FX front, the likelihood of near-term HKMA intervention is limited. Current HKD liquidity conditions remain tight, keeping weak-side pressure contained. First, the Aggregate Balance remains low at HKD54bn, limiting the scope for excess liquidity to push HIBOR materially lower. The 3M HIBOR-SOFR spread currently stands at around -80bp, still short of the -120bp level associated with renewed weak-side pressure. Second, seasonal month-end and quarter-end funding demand should provide support to 3M HIBOR at around 2.70%. Third, easing US dollar strength should reduce depreciation pressure on the HKD. UST yields have declined across tenors amid growth concerns and slower hyperscaler borrowing. Despite this, tight HKD liquidity and seasonal funding demand should support front-end HKD rates, with 1M HIBOR reaching 3.15% by year-end.

CONCLUSION

Hong Kong’s growth momentum strengthened in Q3, supported by robust external demand, recovering investment and resilient credit growth. However, geopolitical tensions, particularly in the Middle East, remain a source of uncertainty for global trade and energy prices. We upgrade our 2026 GDP growth forecast from 3.8% to 4.8%, reflecting stronger-than-expected external demand and improving domestic investment momentum.

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