Hong Kong lifts growth forecast to 4.8% as AI-related trade powers exports

The upgrade puts the city on course for its strongest annual expansion in five years, according to the South China Morning Post. But “on course” matters: 4.8% is a forecast built on three quarters of results and an expectation of further solid growth in the fourth. It is not a completed annual result, nor proof that the gains are reaching every household.⁠1⁠2

The change in expectations has been substantial. February's Budget projected real growth of 2.5% to 3.5%. August lifted that range to 3.5% to 4.5%. November replaces it with a single projection, 0.3 percentage points above the previous ceiling. The South China Morning Post places the anticipated five-year best against the 6.5% expansion recorded in 2021; that distinction remains conditional on the unfinished year's outcome.⁠14⁠2⁠1

The measured acceleration is already clear. Third-quarter real gross domestic product grew 5.2% from a year earlier, up from 4.2% in the second quarter. Across January through September, growth reached 5.1%, the fastest pace for that nine-month period in five years. That figure and the 4.8% annual forecast cover different periods; they are not competing estimates.⁠2

The shorter comparison also improved. After seasonal adjustment, output rose 1.9% from the second quarter, reversing a 0.7% decline. Both third-quarter readings were unchanged from the advance estimate. Together they show an economy producing more than a year ago and recovering momentum from the immediately preceding quarter—not simply benefiting from a favourable annual comparison.⁠2

Goods exports supply the most striking number behind the revision. Their real value rose 30.3% from a year earlier in the third quarter, accelerating from 28.9% in the second. The government linked the robust trade flows to strong global demand for AI-related electronic products. Exports to mainland China, many other Asian markets and the United States continued to grow markedly, while shipments to the European Union increased further.⁠2

There is a boundary around that explanation. The 30.3% figure measures all goods exports, not an AI-only category. The published evidence does not establish a separate growth rate for AI exports or a precise percentage-point contribution from AI-related trade to GDP. AI demand is an important driver; it is not a licence to relabel the entire export surge as AI growth.

Goods exports also increased 1.5% from the preceding quarter after seasonal adjustment. That supports the picture of continuing momentum, though the sequential gain is far less spectacular than the annual headline. Government economist Irina Fan nevertheless made clear how central the global investment cycle is to the outlook.⁠2

Services contributed too. Their exports grew 4.3% in real terms from a year earlier, up from 3.2%, and increased 2.2% from the previous quarter after seasonal adjustment. Stronger cross-boundary traffic supported transport, while inbound tourism helped travel services. Financial and business services expanded more mildly. Officials expect continued visitor growth and steady cross-boundary financial and business demand to support the final quarter.⁠2

Domestic demand presents a less uniform picture. Private consumption rose 2.9% from a year earlier for a sixth consecutive quarterly increase, with every major category of spending in the domestic market growing. Yet consumption was broadly flat against the second quarter after seasonal adjustment. Households were spending more than a year earlier, but the latest quarter did not bring a fresh acceleration.⁠2

Investment was stronger. Overall fixed investment grew 7.5% in real terms from a year earlier, compared with 3.7% in the preceding quarter. Private-sector investment rose 11.6%, its fourth consecutive quarter of double-digit growth, supported by machinery, equipment and intellectual property spending, alongside construction and ownership-transfer costs. Public investment was still falling, although its decline narrowed. This was a private-sector-led investment upswing, not expansion across the board.⁠2

Government consumption also returned to growth, rising 1.7% from a year earlier after being virtually unchanged in the second quarter. It increased 2.1% from the preceding quarter after seasonal adjustment. The upgrade therefore rests on more than merchandise trade, even if exports provide its most dramatic evidence.⁠2

For workers, the headline growth rate is only part of the story. Both employment and the labour force increased during the third quarter as graduates and school leavers entered the market. But the workforce grew faster than employment, and the seasonally adjusted unemployment rate edged up to 3.9%. Stronger output did not prevent a rise in the share of people looking for work.⁠2

Median monthly employment earnings increased 3.1% from a year earlier. That is a nominal measure, before inflation, and it excludes foreign domestic helpers. It should not be presented as an inflation-adjusted pay gain or a description of every worker's experience. The practical test of the expansion is not simply whether GDP meets the forecast, but whether employment and purchasing power improve alongside it.⁠2

The government did cut its annual inflation forecasts: underlying inflation is now projected at 1.9%, down from August's 2.5%, and headline inflation at 2.0%, down from 2.6%. Those revisions mean prices are expected to rise more slowly than previously thought, not fall.⁠2

The latest quarterly figures moved in different directions. Underlying inflation rose to 2.0% from 1.7%, mainly because fuel-related components strengthened. Headline inflation, which includes one-off government relief measures, eased to 1.7% from 1.9%. Officials said higher international oil prices had reached consumer fuel costs more slowly than expected, with earlier fuel subsidies helping cushion the pressure. Some effects of those elevated oil prices are still expected to feed through into 2027.⁠2

The risks to growth are closely connected to its present strengths. Renewed trade tensions could weaken overseas demand. Prolonged Middle East tensions could intensify inflation and change major central banks' interest-rate paths. Higher sovereign bond yields in heavily indebted advanced economies could tighten financial conditions. The government also explicitly warned of a possible market correction if expectations for AI prove too optimistic.⁠2

Incoming fourth-quarter data pointed to sustained momentum, officials said, with earnings, consumer sentiment and private investment expected to support domestic demand. That gives the upgrade a basis beyond optimism alone. Still, Hong Kong's stronger outlook carries two unfinished tests: whether trade and investment deliver the projected annual result, and whether a faster-growing economy translates into steadier work and stronger household purchasing power. The AI investment cycle is helping now; the government's own warning is that it can also disappoint.⁠2