Hong Kong’s economy performed better than expected at the start of the year, when there was a lot of concern about “Trade War 2.0” after Donald Trump’s return to the Oval Office in January.
While the United States’ shifting economic and trade policies have created significant uncertainty for global businesses, Hong Kong remains committed to its free trade policy, welcoming businesses and talent from around the world to establish a presence in the city.
Better Performance
Hong Kong has been in the middle of the China-US Trade War since Trump’s first administration, when we witnessed a 20% plunge in Hong Kong’s re-exports of goods of Chinese origin to the US, along with a 4.1% drop in total exports in 2019. Coupled with the impact of the Covid-19 pandemic, unemployment in the import/export and wholesale sectors surged from 2.4% in 2019 to 4.8% in 2020.
With the trade war back in play, many are preparing for the worst-case scenario. Trump’s on-again, off-again tariffs have kept analysts and economists busy revising their models to estimate the impact. Hong Kong-origin goods imported into the US faced reciprocal tariffs as high as 125% – though they were never implemented – but later dropped to 24% and were suspended for one year following the China-US trade deal in late October.
However, fluctuating tariffs, along with measures such as the removal of the de minimis threshold, led to a 19.3% drop in re-exports of Chinese-origin goods to the US in the first nine months of 2025. Despite this, Hong Kong’s total exports have increased by 13.4%, benefiting from the “rush shipment” effect and the ongoing diversification of export markets, which has contributed to export resilience.
With this export strength, Hong Kong’s economic growth accelerated from 3.1% year-on-year in the second quarter to 3.8% in the third quarter. Exports, as the main driver, contributed significantly to this growth. The Government also revised its 2025 GDP forecast to 3.2%, from 2-3% in its August review. Additionally, global investors have shown confidence in the Hong Kong market, leading to an influx of capital that is likely to position Hong Kong at the top of the global IPO market. In the first 10 months of the year, Hong Kong recorded 80 IPOs, raising over US$26 billion. The Hang Seng Index also rose from below 20,000 points to approximately 25,000 points recently, representing a 25% increase.
Facing the Challenges
However, one concern is the disconnect between the vibrant stock market and the somewhat sluggish real economy. The unemployment rate gradually rose from 3.1% at the start of the year to 3.8% in August-October, reaching one of the highest levels in three years. In particular, the construction sector recorded an unemployment rate of 7%, while retail, accommodation and food services reached 5.5%.
Throughout the year, the retail market has remained a concern. We cannot deny the structural changes in the retail market following the pandemic, particularly the shifts in consumer habits. Before the pandemic, average monthly retail sales reached $40 billion in 2018, but have plateaued at around $30 billion. To make matters more challenging, leading e-commerce giants in the Chinese Mainland have introduced free shipping for Hong Kong consumers, intensifying competition. While there are over 63,000 retail establishments in Hong Kong employing 230,000 people, the industry must adapt quickly to changes in the retail market. On a positive note, retail sales have returned to positive growth in recent months, partly due to the increasing number of inbound visitors amid mega events, the opening of Kai Tak Sports Park, and the 15th National Games, which should support the retail market for the rest of the year.
The property market remained subdued, consistently pressured by weak demand and high supply, with residential and office property prices returning to levels seen approximately 10 years ago. The good news is that the residential property market appears to have bottomed out. Fuelled by an influx of talent and students, the residential rental index continued to grow throughout the year, reaching a six-year high in September, while home prices also rose to a 14-month high. However, it is essential to note that the office market is experiencing decade-low lease rates, with no market recovery in sight for 2025.
A Year of Resilience
Entering 2025, we faced significant uncertainty, but as the year draws to a close, we have demonstrated remarkable resilience. This is crucial in an era marked by increasing unpredictability, particularly amid shifts in the global economic landscape. With expectations that the “rush shipment” effect will begin to wane, along with the uncertain magnitude and pace of future US rate cuts, we should anticipate slower growth in the remainder of the year. However, overall, 2025 is poised to show stronger growth than 2024.
Doris Fung, dfung@chamber.org.hk