IMF turns less upbeat on Hong Kong growth, with 2025 forecast cut

THE International Monetary Fund (IMF) lowered its forecast for Hong Kong’s economic growth this year and warned of the risks Asia’s financial capital faces as it integrates more closely with mainland China.

Gross domestic product will likely expand at a weaker pace from last year, with the IMF downgrading its forecast for 2025 to 2.7 per cent – from the 3 per cent it predicted in an October report. The fund then expects growth to “slow modestly” and reach about 2.5 per cent by 2029, according to a statement issued on Friday (Jan 10) following an official staff visit. 

While the city is rebounding from the fallout of the Covid pandemic, challenges are only mounting, putting the economy “on a path of gradual but uneven recovery after a protracted period of shocks,” it said.

A key risk is Hong Kong’s economic and financial integration with China, along with the increasing exposure to its housing market downturn and global geopolitical divides. The growing ties are putting logistics and trade firms under pressure, adding to worries at a time when a rapidly ageing society is already weighing on the long-term outlook.

The assessment is a reminder of the obstacles the city confronts days before the inauguration of Donald Trump, who’s threatened to enact steep tariffs on imports from China. Hong Kong itself recently revised its growth expectations toward the lower end of a previous range, with officials citing weakness in exports and consumption. 

The IMF mentioned that risks are to the downside, warning that a sharper-than-expected slowdown in China or a fractured global market could lead to weaker demand for Hong Kong’s goods and services. The city’s financial system remains resilient, it said.

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Consumer inflation is set to “gradually increase and stabilize” at 2.5 per cent as economic slack and the drag from China’s lower prices start to fade, according to the IMF.

In the property sector, the IMF’s staff found that the decline in home prices was more a result of increased supply rather than high interest rates and suggested that future loosening of measures “should be carefully designed” to avoid excessive risk-taking. 

“With continued economic slack and external and domestic headwinds, policies should be geared toward supporting domestic demand and mitigating risks,” the fund staff wrote. BLOOMBERG