The Hong Kong economy grew at a slower-than-forecast pace in 2023, highlighting the challenges to the city’s post-Covid recovery as growth is impacted by the slowdown in China and higher interest rates overseas.

GDP grew 3.2% last year, as per the Census and Statistics Department’s advanced estimates published on Wednesday. This compares to 3.4% growth forecast by economists.

Last year, the government predicted economic growth would reach a range of between 4% and 5% but subsequently downwardly revised its estimate as the initial rise in tourism and consumption started to wane.

In Q4 last year, Hong Kong’s GDP increased 4.3% compared to the previous year, as per the advanced figures. This fell short of economists’ projections of 4.7% growth, Bloomberg reports.

Last year’s figure matched the government’s forecast for November, bolstered by a low base of comparison the year before when the economy contracted 3.7%.

“Looking ahead, the difficult external environment will continue to pose pressures on Hong Kong’s exports of goods in 2024. The situation may stabilise later in the year if advanced economies cut interest rates as expected,” said a spokesperson for the government alongside the release of the growth estimates.

Following economic contraction between 2019 and 2022 with the exception of one year, Hong Kong is struggling to recover lost growth.

Despite the final Covid restrictions coming to an end in March, tourist numbers are still trailing. Visitors from mainland China are around a third lower than before Hong Kong implemented stringent quarantine measures.

Furthermore, consumption and investment continue to be impacted by high US interest rates, which have kept borrowing costs in Hong Kong elevated, as the local currency is pegged to the Dollar.