Hong Kong: Revise the real GDP growth forecast for the full year 2026 to 3.5% and the inflation forecast remains unchanged

The Zhitong Finance App learned that on August 14, the Hong Kong Government published the “2026 Half-Year Economic Report” and revised GDP figures for the second quarter of 2026. Government economic adviser Fan Yuen-yee said that looking forward to the future, Hong Kong's economy should grow steadily in the second half of 2026. Taking into account the stronger actual figures for the first half of this year and the short-term outlook, Hong Kong's real GDP growth forecast for the full year 2026 was revised upward from 2.5% to 3.5% at the time of the May review to 3.5%.

In terms of the inflation outlook, consumer price inflation is expected to rise in the coming months, as the impact of the earlier sharp rise in international oil prices will continue to be transmitted to consumer prices. Continued geopolitical tension in the Middle East has increased uncertainty about the inflation outlook. However, price pressure in other areas remains largely under control, which should help keep overall inflation at a moderate level. Taking into account the actual inflation figures for the first half of this year and the above factors, the forecasts for basic and overall consumer price inflation in 2026 will remain at 2.5% and 2.6%, respectively, the same as during the May review.

Strong global demand for artificial intelligence-related electronic products is expected to continue to support Hong Kong's commodity trade performance, and related logistics services should also benefit from this positive trend. Service exports are also expected to benefit from continued growth in visitors to Hong Kong and stable demand for financial and commercial services in Hong Kong. Supported by stable labor market conditions and a strong business and consumer climate, internal demand is expected to remain strong.

However, peripheral disadvantages persist. The geopolitical tension in the Middle East remains volatile, and the impact may spill over to the energy market and global inflation. Inflation trends in major economies, policy directions of major central banks, and trade protectionism in advanced economies deserve close attention. The risks associated with the rapid expansion of global AI investments must also be kept in mind.

Hong Kong GDP

According to revised figures released by the Census and Statistics Department, the real GDP of Hong Kong increased by 4.3% year-on-year in the second quarter of 2026 (same as previously estimated), and increased by 5.9% in the previous quarter. On a seasonally adjusted quarterly basis, real GDP declined slightly by 0.6% in the second quarter after a marked 2.9% increase in the previous quarter (same as estimated).

foreign trade

The real year-on-year growth rate of overall exports of goods accelerated to 28.9% in the second quarter, up from 23.8% in the previous quarter. There is a strong global demand for electronic products related to artificial intelligence, driving strong trade exchanges and supporting strong export growth. With reference to foreign merchandise trade statistics and analysis based on major markets, exports to the Mainland continued to record a year-on-year double-digit increase. Exports to the ASEAN market continued their momentum and increased at an accelerated pace, while exports to many other Asian economies also expanded at a relatively rapid pace. Exports to the US have increased markedly, while exports to the EU have recorded a steady rise. After seasonal adjustment, overall exports of goods increased significantly by 7.0% in real terms in the second quarter.

Service exports expanded steadily by 3.4% in the second quarter after a real 3.3% year-on-year increase in the previous quarter. The output of all major service groups continues to expand. Specifically, exports of transportation services, financial services, and commercial and other services are growing rapidly, supported by active cross-border transportation and financial services activities. The export of tourism services continues to expand, driven by steady growth in the Hong Kong tourism industry. On a quarterly basis after seasonal adjustments, service exports increased by 1.2% in real terms in the second quarter.

Internal economy

Private consumption expenditure rose steadily by 2.8% year-on-year in the second quarter, recording the fifth consecutive quarter of expansion, up 4.9% in the previous quarter. All major categories of consumer spending in Hong Kong's local market increased year-on-year in the second quarter. On a quarterly basis after seasonal adjustments, private consumption expenditure increased by 0.6% in real terms in the second quarter. Meanwhile, government consumption expenditure remained virtually unchanged in the second quarter compared to the previous quarter, rising 2.8% in the previous quarter. On a quarterly basis after seasonal adjustments, government consumption expenditure actually declined by 1.9% in the second quarter.

Overall investment expenditure based on Hong Kong's gross domestic fixed capital formation increased by 4.4% in real terms in the second quarter compared to the 18.3% increase in the previous quarter, although it was slower than the 18.3% increase in the previous quarter. The slowdown in growth was mainly due to a slowdown in public sector building and construction expenditure, which reflected the uneven distribution of payments according to the phased progress of the project during the quarter. Private sector investment spending remained strong and rose even more significantly in the second quarter, the third consecutive quarter of double-digit growth. The growth was supported by continued significant increases in spending on purchasing machinery, equipment and intellectual property products; further soaring ownership transfer costs due to active property trading; and reversing the decline and returning to moderate growth in building and construction spending.

labor market

The labour market remained stable in the second quarter. The seasonally adjusted unemployment rate remained at 3.7%, the same as in the previous quarter. The underemployment rate also remained unchanged at 1.6%. The average monthly employment income of full-time employees (excluding foreign domestic helpers) continued to record a year-on-year increase of 2.3% in nominal terms.

asset market

The overall situation in Hong Kong's asset market in the second quarter supported the consumer and investment climate. The residential property market continued its positive momentum in the second quarter. Based on the total number of residential property sales contracts submitted to the Land Registry, the volume of transactions in the second quarter increased significantly by 19% from the previous quarter to 22,156, the highest quarterly level in 14 years, and a significant increase of 32% from a year ago. Overall residential property sales prices increased significantly by 3% in the second quarter, with a cumulative increase of 8% since this year. Overall residential property rents also remained strong, rising another 2% in the second quarter.

The trend of Hong Kong's local stock market in the second quarter was repeated. The Hang Seng Index closed at 22,881 points at the end of the quarter, down 7.7% from the end of March. Despite this, market trading remained active. The average daily turnover for the second quarter rose by 21.8% year over year to HK$289.5 billion, while IPO fund-raising activities were booming. These all reflect investors' keen interest in cutting-edge technology and artificial intelligence-related assets. Entering the third quarter, the Hang Seng Index recovered some of its losses and closed at 25,440 points on August 12.

Prices

Consumer price inflation rose slightly in the second quarter, mainly driven by the successive increases in the prices of fuel-related items due to high international oil prices since the end of February. The price pressure on the other components remained largely under control, keeping overall inflation at a moderate level. The basic composite consumer price index rose 1.7% year on year in the second quarter, which is faster than the 1.4% increase in the previous quarter. Taking into account the effects of the government's one-time relief measures, the overall composite consumer price index rose 1.9% year on year in the second quarter, up from 1.6% in the previous quarter.