Economic growth accelerates in the fourth quarter

GDP reading: GDP expanded 2.4% on an annual basis in Q4 (Q3: +1.9% year on year), broadly in line with market expectations. The general economic picture was similar to recent quarters, with higher visitor arrivals boosting services exports and private spending remaining depressed due to residents spending money in mainland China rather than in Hong Kong. On a seasonally-adjusted quarter-on-quarter basis, GDP expanded 0.8% in Q4, contrasting the previous period's 0.1% contraction and marking the best result since Q1.

Drivers: Household spending fell at a milder pace of 0.2% year-on-year in the fourth quarter, which marked the best reading since Q1 (Q3: -1.3% yoy). Public spending improved moderately to a 1.9% increase in Q4 (Q3: +1.7% yoy). Meanwhile, fixed investment contracted 0.9% in Q4, marking the worst result since Q2 2023 (Q3: +5.7% yoy). Exports of services growth accelerated to 5.6% year on year in the fourth quarter (Q3: +2.9% yoy). Conversely, imports of services growth ebbed to 8.7% in Q4 (Q3: +8.9% yoy). Exports and imports of goods both grew at modest rates in Q4.

GDP outlook: Looking to this year, an ongoing recovery in visitor arrivals will support the economy. However, the pace of interest rate cuts will be capped by persistent inflation in the U.S., restraining fixed investment. Moreover, the Hong Kong dollar will likely remain strong by historical standards, which will continue to encourage locals to shop on the mainland.

Panelist insight: United Overseas Bank’s Ho Woei Chen said: “We keep our GDP growth forecast for Hong Kong at 2.0% for 2025 as we monitor the global trade developments under Trump 2.0 and the mainland’s economic outlook. A slower pace of rate cuts in the US would also impact the outlook for the local housing market. The 2025-26 Budget to be announced on 26 Feb is expected to see more urgency on fiscal consolidation.”

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