The Hong Kong economy grew 1.5% in Q2 compared to last year, according to the latest official seasonally adjusted data.

This is a slowdown from the 2.9% growth in the first quarter as export demand softened and investment spending declined.

The Q2 growth figure matched a preliminary estimate made last month when the Q1 figure was revised, Reuters news agency reports.

Although Hong Kong has registered two straight quarters of growth, the economy is expanding more slowly than the 3.6% year-on-year forecast by economists surveyed by Reuters.

The government has revised its 2023 growth estimate to between 4.0% and 5.0% from a previous range of between 3.5% and 5.5%.

Last year, Hong Kong’s economy contracted 3.5%.

According to government economist Adolph Leung, the challenging global economic environment would continue to impact exports, yet “inbound tourism and private consumption will remain the major drivers of economic growth for the rest of the year.

“Improved labour market conditions and the government's various measures that boost the momentum of the recovery will provide additional support to private consumption,” Leung continued, going on to add that financial conditions were still tight.

Preliminary visitor arrivals to Hong Kong increased in July by 31% from June to 3.6 million, bolstered by travel from the mainland and Southeast Asia.

“Hong Kong's tourism industry is recovering gradually,” stated Dane Cheng, executive director of the Hong Kong Tourism Board (HKTB).

Hong Kong-registered over 16 million visitors during the first seven months of the year, the HKTB stated. 

Furthermore, the economy contracted 1.3% in Q2 on a quarterly basis, the largest contraction since Q3 last year when the economy shrank 2.5%.

Whereas Hong Kong’s economic growth registered 5.4% during the first three months of the year compared to the prior quarter.

Downside risks could also stem from a challenging external environment, with exports remaining under pressure due to softening demand from mainland China and around the world, according to DBS economist Samuel Tse.

“A high-interest rate environment is also negatively affecting investment sentiment, particularly in the property sector,” Tse stated.