HKMA report: Hong Kong's economy grew strongly in the first half of the year; 2026 Hong Kong real GDP forecast revised upward to 3.5% to 4.5%.

On September 29, the Hong Kong Monetary Authority released the "Half-Yearly Monetary and Financial Stability Report (September 2026)." The report shows that the Hong Kong economy grew strongly in the first half of 2026, with real GDP rising by 5.9% and 4.3% year-on-year in the first and second quarters respectively. After seasonal adjustment, real GDP rose significantly by 2.9% quarter-on-quarter in the first quarter, but edged down by 0.6% in the second quarter. The report expects the Hong Kong economy to remain solid and continue expanding for the remainder of 2026. Taking into account the latest economic situation, the Hong Kong government revised its 2026 real GDP growth forecast upward from the previous 2.5% to 3.5% to 3.5% to 4.5%. Economic growth was supported by strong export performance and solid domestic demand. Externally, goods exports expanded significantly, benefiting from strong global demand for artificial intelligence-related electronic products. Supported by continued growth in inbound tourism and vibrant cross-border financial activities, services output remained buoyant. Domestically, private consumption strengthened further, supported by solid consumer confidence and stable asset markets. Meanwhile, investment expenditure continued to expand in the first half of the year, partly driven by brisk property transactions and strong private-sector capital spending. During the review period, Hong Kong's monetary environment remained accommodative. As at end-August 2026, the Hong Kong dollar monetary base remained large and broadly stable, at HK$2,080.3 billion. In the first seven months of 2026, total deposits with authorized institutions increased by 5.8%. Among these, Hong Kong dollar deposits and foreign currency deposits rose by 6.2% and 5.5% respectively. As monetary statistics may be affected by various short-term factors (such as seasonal funding demand and business and investment-related activities) and thus fluctuate, it is appropriate to observe longer-term trends. Overall, interbank market trading in Hong Kong continued to be smooth and orderly. In line with the expectations and design of the linked exchange rate system, Hong Kong interbank rates generally tracked US dollar interest rates, while short-term rates were also affected by local Hong Kong dollar funding supply and demand conditions. Short-term Hong Kong interbank rates fell in early March 2026 and then generally rebounded, reflecting changes in seasonal and capital market-related funding demand. During the review period, the offshore renminbi interbank market continued to operate normally. In the first seven months of 2026, Hong Kong's offshore renminbi liquidity pool expanded. As at end-July 2026, renminbi customer deposits and certificates of deposit balances increased by 22.7% to RMB1,345.2 billion. Among these, total renminbi customer deposits rose by 17.2%, mainly driven by an increase in corporate customer deposits. Renminbi certificate of deposit balances increased by 60.8% over the same period. As for other renminbi businesses, the overall renminbi loan balance grew by 15.3% in the first seven months of 2026. In the first seven months of 2026, the amount of renminbi trade settlement handled by Hong Kong banks reached RMB8,178.5 billion, down 4.5% from RMB8,568.0 billion in the same period of 2025. Nevertheless, Hong Kong has a large renminbi liquidity pool, and the Hong Kong banking sector has strong capabilities and extensive networks to continue supporting a large volume of renminbi payment and financing transactions. In the first seven months of 2026, the average daily turnover of the renminbi real-time payment settlement system remained at a high level of RMB2,471.4 billion, compared with RMB2,759.7 billion in the same period of 2025. The report notes that the HKMA will study the introduction of a 7-day offshore renminbi liquidity bidding mechanism to add a new channel to support banks' short-term renminbi funding needs. The HKMA will also study the feasibility of issuing short-term offshore renminbi debt instruments to further improve the offshore renminbi interest rate curve, and advance the establishment of a bilateral currency trading framework for offshore renminbi and Indonesian rupiah. In terms of banking sector performance, the overall pre-tax operating profit of Hong Kong retail banks grew by 20.4% in the first half of 2026 compared with the same period in 2025. Growth was mainly driven by increases in net interest income, fee and commission income, and income from investments held for trading, with part of the increase offset by a decline in income from foreign exchange and derivatives business. Overall, the return on assets of banks rose from 1.27% in the same period of 2025 to 1.40% in the first half of 2026. Asset quality risks in the Hong Kong banking sector remained controllable and showed signs of improvement in the first half of 2026. The total specific classification loan ratio of authorized institutions fell from 2.01% at end-2025 to 1.82% in the second quarter of 2026. At the same time, the overdue and restructured loan ratio of authorized institutions also declined modestly from 1.54% at end-2025 to 1.47% in the second quarter of 2026.