Hong Kong: Revising the 2026 full-year real GDP growth forecast upward to 3.5% to 4.5%, while keeping the inflation forecast unchanged.

On August 14, the Hong Kong government released the "2026 Half-Year Economic Report" and revised figures for local GDP for the second quarter of 2026. Government economic advisor Fan Yuan'er stated that looking ahead, Hong Kongs economy should experience steady growth in the second half of 2026. Considering the strong actual figures for the first half of this year and the short-term outlook, the forecast for Hong Kong's real local GDP growth for the entire year of 2026 has been revised upward from 2.5% to 3.5% during the May review to 3.5% to 4.5%. Regarding inflation outlook, the impact of the earlier surge in international oil prices will continue to be passed on to consumer prices, leading to an expected rise in consumer price inflation in the coming months. Ongoing geopolitical tensions in the Middle East have increased uncertainties in the inflation outlook. However, price pressures in other categories remain broadly controlled, which should help keep overall inflation at a moderate level. Taking into account the actual inflation figures from the first half of this year and the aforementioned factors, the forecasts for core and overall consumer price inflation rates for 2026 remain at 2.5% and 2.6%, respectively, the same as during the May review. The strong global demand for artificial intelligence-related electronic products is expected to continue supporting Hong Kong's goods trade performance, and related logistics services should benefit from this positive momentum. Service exports are also expected to benefit from the sustained growth in visitors to Hong Kong, as well as the stable demand for Hong Kongs financial and business services. Supported by a stable labor market and a strong business and consumer atmosphere, domestic demand is expected to remain resilient. However, adverse external factors persist. Geopolitical tensions in the Middle East remain unpredictable, and such effects may spill over into energy markets and global inflation. The inflation trends in major economies, the policy directions of major central banks, and trade protectionism in advanced economies are all worth close attention. Risks associated with the rapid expansion of global investments in artificial intelligence should also be monitored. Hong Kong Local GDP According to the revised figures released by the Census and Statistics Department, Hong Kong's real GDP grew by 4.3% year-on-year in the second quarter of 2026 (consistent with the previous estimate), following a rise of 5.9% in the previous quarter. Seasonally adjusted and compared to the previous quarter, real GDP slightly declined by 0.6% in the second quarter, following a significant rise of 2.9% in the previous quarter (consistent with the previous estimate). External Trade Overall goods exports accelerated to a year-on-year real growth rate of 28.9% in the second quarter, up from 23.8% in the previous quarter. The strong global demand for artificial intelligence-related electronic products has driven robust trade activities, supporting strong export growth. Analyzing external merchandise trade statistics by major markets, exports to the mainland continued to record double-digit year-on-year growth. Exports to ASEAN markets continued their momentum and accelerated in growth, while exports to several other Asian economies also expanded at a faster pace. Exports to the United States showed significant growth, and exports to the European Union recorded steady increases. Seasonally adjusted and compared to the previous quarter, overall goods exports further increased significantly by 7.0% in the second quarter. Service exports continued to grow steadily, rising by 3.4% year-on-year in the second quarter, following a 3.3% increase in the previous quarter. All major service sectors continued to expand. Specifically, supported by vibrant cross-border transportation and financial services activities, the output of transportation services, financial services, and business and other services accelerated growth. Fueled by the robust growth in the tourism sector, the output of tourism services continued to expand. Seasonally adjusted and compared to the previous quarter, service exports rose by 1.2% in the second quarter. Domestic Economy Private consumption expenditure increased steadily by 2.8% year-on-year in the second quarter, marking the fifth consecutive quarter of expansion, following a rise of 4.9% in the previous quarter. All major categories of consumption expenditure in the local market experienced year-on-year increases in the second quarter. Seasonally adjusted and compared to the previous quarter, private consumption expenditure rose by 0.6% in the second quarter. Meanwhile, government consumption expenditure was roughly unchanged year-on-year in the second quarter, following a rise of 2.8% in the previous quarter. Seasonally adjusted and compared to the previous quarter, government consumption expenditure fell by 1.9% in the second quarter. Overall investment expenditure, based on the total fixed capital formation in Hong Kong, further increased by 4.4% year-on-year in the second quarter, although this growth slowed from 18.3% in the previous quarter. The slowdown in growth was primarily due to a deceleration in public sector building and construction expenditures, reflecting the uneven distribution of payments based on the projects stage of progress in the current quarter. Private sector investment expenditure remained strong and rose significantly in the second quarter, recording double-digit growth for the third consecutive quarter. This growth was supported by significant increases in expenditures on machinery, equipment, and intellectual property products, further surging transfer costs from property transactions due to active trading, as well as a reversal of declines in building and construction expenditures, which resumed moderate growth. Labor Market The labor market remained stable in the second quarter. The seasonally adjusted unemployment rate remained at 3.7%, unchanged from the previous quarter. The underemployment rate also remained stable at 1.6%. The average nominal monthly earnings for full-time employees (excluding foreign domestic workers) continued to grow year-on-year, rising by 2.3%. Asset Markets Overall, the conditions in Hong Kong's asset markets in the second quarter supported the consumption and investment atmosphere. The residential property market continued its good momentum in the second quarter. The total number of residential property sale and purchase agreements lodged with the Land Registry increased significantly by 19% in the second quarter to 22,156, reaching the highest quarterly level in fourteen years and representing a significant year-on-year increase of 32%. Overall residential property prices rose further by 3% in the second quarter, bringing the cumulative increase since the beginning of the year to 8%. Overall residential property rents also remained resilient, rising by an additional 2% in the second quarter. The performance of Hong Kong's local stock market was mixed in the second quarter. 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, with the average daily turnover in the second quarter significantly rising year-on-year by 21.8% to HK$289.5 billion, while new stock fundraising activities flourished. These developments reflect investors' keen interest in cutting-edge technology and artificial intelligence-related assets. Entering the third quarter, the Hang Seng Index recouped some losses, closing at 25,440 points on August 12. Prices Consumer price inflation rose slightly in the second quarter, primarily driven by the prices of fuel-related items, which increased due to high international oil prices since late February. Price pressures in other components remained broadly controlled, keeping overall inflation at a moderate level. The core composite consumer price index rose by 1.7% year-on-year in the second quarter, accelerating from a 1.4% increase in the previous quarter. Considering the effects of government one-off relief measures, the overall composite consumer price index rose by 1.9% year-on-year in the second quarter, above the previous quarters 1.6%.