Mastercard Economics Institute Forecasts Hong Kong 2025 GDP Growth at 2.2%

China growth seen at 4.5%, broadly in line with official target

The Mastercard Economics Institute (MEI) forecasts a slight slowdown for Hong Kong’s economy in 2025, anticipating 2.2% growth for the year, compared with 2.5% in 2024. 

MEI maintains a 4.5% GDP growth forecast for China in 2025, broadly in line with the official target of about 5% with risks skewed to the upside. China recorded actual growth of 5% in 2024. This forecast is supported by Beijing’s pledge to support household consumption, improvements in the business environment for the private sector and a potential recovery in the housing sector driven by favorable base effects. Additionally, China’s pragmatic approach to tariffs and derisking measures are expected to reduce downside economic risks.

In Hong Kong, elevated interest rates and a strong Hong Kong dollar under the linked exchange rate system continue to pressure local retail, tourism, and real estate industries. Higher US tariffs could also affect Hong Kong, which trades heavily with the Chinese mainland.

Despite these challenges, Hong Kong’s financial sector has been recovering, with the Hang Seng Composite Index up 32% since September 2024¹. The Hong Kong government is also likely to maintain an expansionary fiscal policy in 2025, equivalent to 25% of GDP, and deep fiscal reserves leave open the possibility of increased stimulus if needed.

However, the nearer-term outlook for Hong Kong remains challenging, particularly for the local retail sector. Total retail sales fell 7.3% year over year in 2024, according to the Census and Statistics Department, remaining 22% below the 2018 level as more residents opt to travel to nearby cities to spend on goods and services. Consumers are also increasingly shopping online instead of at local retail stores. 

According to the Hong Kong Tourism Board, inbound tourists to Hong Kong grew by 31% year over year in 2024, reaching 44.5 million, though this figure remains 31% below the 2018 level. Total inbound tourism-related revenues rose by 10% year over year in 2024, while the average spend per inbound tourist fell by 20% year over year, dropping to HK$3,333 from HK$4,154 in 2023. This decline is partly attributed to shorter average stays and less shopping by Chinese Mainland tourists.

Hong Kong’s post-pandemic demographics are impacting its economy, with new residents less likely to participate in the labor market. There were 269,000 fewer Hongkongers working in 2024, compared to 2018-2019, resulting in a four-percentage-point decline in labor-force participation to 57%. The MEI sees encouraging greater participation in the labor market as a way for Hong Kong to improve its local consumer demand. Introducing policies to revive Hong Kong’s labor force participation rate and facilitate the integration of new immigrants into local life is crucial for structurally improving local demand. MEI calculations show that a recovery in the labor force participation rate to 61% from 57% at end-2024 could increase private consumption by nearly 11%, assuming all else remains unchanged.

Hong Kong’s fixed capital formation fell 0.9% year-over-year in Q4, the first such contraction since Q3 of 2023, likely driven by slower housing investment. While the number of units under construction dropped by 9,000 sequentially in Q4, the expected boost to the sector from monetary easing may be delayed as the market has postponed expectations for the next U.S. interest rate cut. 

The Hong Kong government has kept an expansionary fiscal stance for FY 2025-26, despite a proposed deficit of 4.8% of GDP—a 1.3 percentage point reduction from the previous year. Fiscal spending increases 9% year-on-year to 24% of GDP. A 29% increase in capital spending drives key initiatives including the Northern Metropolis development. Investment sentiment in Hong Kong has notably improved, driven by Deepseek’s announcement of its R1 model. 

Hong Kong is pursuing avenues to attract more visitors from around the world, with a priority placed on integration with the Chinese mainland. The inaugural Hong Kong Global Financial and Industry Summit, for example, fosters connections between Chinese and global companies and investors in Hong Kong, promoting listings and settlements.

Further, a pair of pandas given to Hong Kong by Beijing last summer have become a central attraction, boosting what is known as the "panda economy”. Megaevents including the Standard Chartered Hong Kong Marathon, Asian Financial Forum and Cathay/HSBC Hong Kong Sevens, also provide a strong tourist draw.

David Mann, Chief Economist, Asia Pacific, Mastercard, said: “Mainland China and Hong Kong are experiencing different but related economic pressures and tailwinds, but cautious optimism is warranted in both. Many businesses in the mainland have de-risking measures in place, while Hong Kong’s position as a financial capital serves it well in terms of driving growth.”

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