Hong Kong’s economy grew faster than expected in the first quarter, a tentative sign that the city’s post-pandemic recovery is stabilising.

The city’s gross domestic product expanded 2.7 per cent in the first three months of 2024, according to advanced estimates announced by the Census and Statistics Department on Thursday (May 2). That’s significantly higher than a forecast of 0.8 per cent by economists surveyed by Bloomberg.

The strong pace is an encouraging sign for officials seeking to boost an economy weighed by weak demand in mainland China and high borrowing costs. The figure puts the economy on track to reach an official growth target of 2.5 per cent to 3.5 per cent for 2024.

“This shows Hong Kong has a nice momentum at the beginning of 2024, possible reasons include a rebound in stock market, signalling the economy is not as gloomy as we imagined,” said Samuel Tse, economist at DBS Bank. 

The number comes as Hong Kong is struggling to maintain its status as Asia’s premier finance hub and appeal as a tourist destination, after its reputation took a hit from strict pandemic restrictions and a national security crackdown.

On a quarter-on-quarter basis, GDP expanded 2.3 per cent, quickening from the 0.4 per cent growth in the previous quarter. 

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A loosening of home-buying curbs bolstered sentiment and brought new home sales to a 11-year high in March. But investment demand is expected to remain dampened by elevated interest rates that follow the Fed’s higher-for-longer campaign to fight inflation.

“A longer period of tight financial conditions may have some dampening effects on economic confidence and activities,” a government spokesman said in a statement accompanying the release.

Household spending grew 1 per cent in the first quarter, highlighting still-weak sentiment. Exports of services, which count tourist spendings, rose 8.1 per cent, down from the 21.2 per cent growth in the last quarter of 2023.

A strong local currency – pegged to the greenback – has also hurt inbound tourism and seen residents flocking to mainland China to dine and shop. 

Hong Kong is also facing fiscal pressure from its declining land sales and weakened economy. The city’s financial secretary is targeting a deficit of HK$48.1 billion (S$8.36 billion) for the fiscal year starting April, making it the fifth budget shortfall in six years since the pandemic started. BLOOMBERG