The Mastercard Economics Institute (MEI) predicts a slight deceleration in Hong Kong’s economic growth, estimating a 2.2% expansion in 2025, down from 2.5% in 2024.
Meanwhile, MEI upholds its 2025 GDP growth projection for China at 4.5%, aligning closely with the government’s 5% target.
This follows China’s actual 5% growth in 2024 and is supported by Beijing’s efforts to boost household spending, strengthen the private sector, and revive the housing market.
In addition, strategic tariff adjustments and risk-mitigation measures are expected to cushion potential economic slowdowns.
Hong Kong continues to grapple with challenges from high interest rates and a strong local currency, which are weighing on retail, tourism, and real estate.
Furthermore, rising US tariffs could hurt trade due to the city's deep economic ties with mainland China.
Yet despite these pressures, Hong Kong's financial sector is rebounding, with the Hang Seng Composite Index surging 32% since September 2024.
The government is expected to adopt an expansionary fiscal policy in 2025, equivalent to 25% of GDP, with ample reserves providing room for further stimulus if needed.
However, the short-term outlook remains challenging, especially for the retail sector. In 2024, total retail sales dropped 7.3% year-on-year and remain 22% below pre-pandemic levels, as more consumers opt to shop in nearby cities. The growing shift toward online shopping is also contributing to this decline.
Moreover, inbound tourism has rebounded, with visitor numbers rising 31% in 2024 to 44.5 million, though still 31% below 2018 levels.
While total tourism-related revenue grew by 10%, the average spend per tourist dropped sharply to HK$3,333 from HK$4,154 in 2023, driven by shorter stays and reduced shopping by mainland Chinese visitors.
Moreover, post-pandemic demographic shifts are also reshaping the economy, with labour force participation declining notably.
Last year, 269,000 fewer residents were employed compared to 2018-2019, bringing participation rates down to 57%. The MEI estimates that restoring participation to 61% could drive an 11% surge in private consumption, significantly boosting local demand.
In addition, Hong Kong’s fixed capital formation shrank by 0.9% year-on-year in Q4 2024, the first decline since Q3 2023, primarily driven by lower housing investments. With expectations for monetary easing delayed, a further slowdown in construction activity is likely.
Despite forecasting a 4.8% GDP deficit, the government is continuing its expansionary fiscal stance for FY 2025-26. Spending is expected to rise by 9% year-on-year, making up 24% of GDP, with substantial capital investment directed toward key projects like the Northern Metropolis development.
Hong Kong continues its push to attract global visitors and strengthen ties with the mainland.
Indeed, the first-ever Hong Kong Global Financial and Industry Summit is set to enhance connections between local and international businesses, driving investment opportunities.