Hong Kong's economy expanded at the fastest pace in more than a year, benefiting from a recovery in tourism and an export bump before Donald Trump's drastic tariff hikes.
Gross domestic product increased 3.1% from the same period last year, according to advance government data released Friday. That was the biggest expansion since the last quarter of 2023 and exceeded the median estimate of 2.1% by economists.
The upbeat result, fueled in part by rising tourism, may vindicate efforts by policymakers to make the city an attractive destination again after its image suffered from strict pandemic measures and a crackdown on freedoms.
But the pace is unlikely to last as exports, another key growth driver, likely took a hit from April, when Trump escalated his tariff war against China.
While the city produces few goods of its own, Hong Kong remains highly vulnerable to Trump's trade war due to its heavy reliance on re-exporting mainland Chinese products now facing steep levies imposed by Washington.
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"The extremely high levels of trade policy uncertainty will dampen international trade flows and investment sentiment, which in turn overshadow the near-term outlook for the Hong Kong economy," a government spokesman said in a statement.
Exports to mainland China and Southeast Asia saw strong increases, earlier data showed. Sales to the US rose moderately, likely because of front-loaded shipments to avoid large tariffs entering effect in April.
Trade tensions also threaten to cast a broader chilling effect on business sentiment, amplified by the Trump administration's moves to apply tariffs directly to Hong Kong goods, further blurring lines with mainland China.
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This erosion of the city's unique status, long a key selling point, adds distinct geopolitical risk for companies operating in the former British colony.
In an attempt to buffer its economy against the tariff war, the local government has accelerated efforts to diversify trade partnerships, actively courting regions like the Middle East and Southeast Asia.
The city has also sought to boost tourism by holding large events. The efforts appeared to have helped, with visitor arrivals in the first quarter increasing by 9% to 12.2 million, according to the Hong Kong Tourism Board.
Retail sales continued a protracted slump in March, data released Friday showed. But the decline slowed to 3.5% from the 13% drop in the previous month, offering tentative signs of stabilizing.
A strong local currency, which is pegged to the US dollar, has also hurt the spending power of tourists - mostly from the mainland - and driven many residents to seek bargains in the neighbouring Chinese city of Shenzhen.
The US Federal Reserve's uncertain interest-rate cut path has also kept borrowing costs higher for longer, weighing on the embattled real estate market.
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Hints of possible de-escalation of tensions with the US emerged on Friday, with China saying it is "evaluating" potential trade talks with Washington.
But hurdles still lie ahead. Beijing has been looking for the US to appoint a point person for talks who has Trump's support and can help prepare a deal that the American president and the Chinese leader can sign when they meet.
Charts: Bloomberg
