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Hong Kong has revised its economic outlook upward, with the government now projecting real GDP growth of 3.5% to 4.5% for the full year of 2026, reflecting stronger-than-expected performance in the first half of the year. This adjustment marks a notable increase from the previous forecast of 2.5% to 3.5% made during the May review, according to the 2026 Half-Year Economic Report and revised GDP figures for the second quarter released on August 14.
Government Economist Emily Fan highlighted that the Hong Kong economy is expected to maintain steady growth in the second half of 2026. The upward revision is driven by solid actual data from the first half and a positive short-term outlook, though inflation pressures are anticipated to pick up in the coming months due to lingering effects from earlier surges in international oil prices, Fan noted.
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Fan pointed out that while rising energy costs will feed into consumer prices, price pressures in other categories are expected to remain broadly contained, keeping overall inflation moderate. The underlying and headline consumer price inflation forecasts for 2026 remain unchanged at 2.5% and 2.6%, respectively, consistent with the May review, after factoring in actual inflation data from the first half of the year.
Robust global demand for artificial intelligence-related electronics is expected to continue supporting Hong Kong's merchandise trade performance, with related logistics services also benefiting from this momentum. Service exports are projected to gain from a sustained increase in visitor arrivals and steady demand for Hong Kong's financial and business services. Internal demand is likely to remain resilient, supported by a stable labor market and solid business and consumer sentiment, Fan added.
However, persistent external headwinds remain a concern. Ongoing geopolitical tensions in the Middle East could spill over into energy markets and global inflation, while inflation trends in major economies, central bank policy directions, and trade protectionism in advanced economies warrant close monitoring. Risks associated with the rapid expansion of global AI investments also require attention, Fan cautioned.
According to the revised figures from the Census and Statistics Department, Hong Kong's real GDP grew 4.3% year-on-year in the second quarter of 2026, matching the advance estimate, following a 5.9% increase in the previous quarter. On a seasonally adjusted quarter-on-quarter basis, real GDP slightly declined by 0.6% in the second quarter, unchanged from the advance estimate, after a substantial 2.9% rise in the prior quarter.
Focus on key sectors
Total merchandise exports saw a sharp acceleration in year-on-year real growth to 28.9% in the second quarter, up from 23.8% in the first quarter. This strong export performance was driven by vibrant trade flows fueled by robust global demand for AI-related electronics. By major market, exports to mainland China continued to record double-digit year-on-year growth, while shipments to ASEAN markets picked up pace, and exports to many other Asian economies also expanded at a faster rate. Exports to the United States grew notably, and exports to the European Union saw steady increases. On a seasonally adjusted quarter-on-quarter basis, total merchandise exports further rose by a significant 7.0% in real terms in the second quarter.
Service exports expanded steadily by 3.4% in the second quarter year-on-year, following a 3.3% rise in the first quarter. All major service components continued to grow, with transport, financial, and business services seeing faster expansion, supported by active cross-border transport and financial activities. Tourism services also continued to expand, driven by steady growth in visitor arrivals. On a seasonally adjusted quarter-on-quarter basis, service exports increased by 1.2% in real terms in the second quarter.
Private consumption expenditure rose 2.8% year-on-year in real terms in the second quarter, marking the fifth consecutive quarter of expansion, though slowing from the 4.9% growth in the first quarter. All major categories of local consumer spending recorded year-on-year increases in the second quarter. On a seasonally adjusted quarter-on-quarter basis, private consumption expenditure rose 0.6% in real terms. Meanwhile, government consumption expenditure remained broadly unchanged year-on-year in real terms in the second quarter, following a 2.8% increase in the previous quarter. On a seasonally adjusted quarter-on-quarter basis, government consumption expenditure fell 1.9% in real terms in the second quarter.
Overall investment spending, measured by gross domestic fixed capital formation, increased 4.4% year-on-year in real terms in the second quarter, slowing from 18.3% growth in the first quarter. This deceleration was primarily due to slower public sector building and construction spending, reflecting uneven distribution of payments based on project progress during the quarter. Private sector investment spending, however, remained strong and recorded further significant growth, marking the third consecutive quarter of double-digit expansion. This was supported by continued notable increases in spending on machinery, equipment, and intellectual property products, a further surge in ownership transfer costs amid active property transactions, and a recovery in building and construction spending which turned to modest growth after a decline.
Labor market stability
The labor market remained stable in the second quarter, with the seasonally adjusted unemployment rate holding at 3.7%, unchanged from the previous quarter. The underemployment rate also stayed at 1.6%. Average monthly employment earnings for full-time employees (excluding foreign domestic helpers) continued to record year-on-year nominal growth of 2.3%.
Asset market conditions in Hong Kong broadly supported consumer and investment sentiment during the second quarter. The residential property market maintained a good momentum, with the total number of sale and purchase agreements for residential properties registered with the Land Registry rising significantly by 19% quarter-on-quarter to 22,156 units in the second quarter, the highest quarterly level in 14 years and up 32% year-on-year. Overall residential property prices further increased by 3% during the quarter, bringing the cumulative gain for the year to 8%. Overall residential property rents remained resilient, rising another 2% in the second quarter.
The local stock market was volatile 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 turnover remained active, with average daily turnover significantly rising 21.8% year-on-year to HK$289.5 billion in the second quarter, while IPO activity was also brisk. These developments reflect strong investor interest in frontier technology and AI-related assets. Entering the third quarter, the Hang Seng Index recovered some ground, closing at 25,440 points on August 12.
Consumer price inflation edged up slightly in the second quarter, primarily driven by rising prices of fuel-related items due to elevated international oil prices since late February. Price pressures in other components remained broadly contained, keeping overall inflation moderate. The underlying Composite Consumer Price Index rose 1.7% year-on-year in the second quarter, accelerating from a 1.4% increase in the first quarter. Including the effects of government one-off relief measures, the headline Composite CPI increased 1.9% year-on-year in the second quarter, up from 1.6% in the previous quarter.
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