AI exports to drive Hong Kong's 3.8% growth, says BEA

Consumption and investment are expected to extend the city's economic recovery.

Demand for artificial intelligence (AI)-related hardware is expected to help drive Hong Kong's economy to 3.8% growth in 2026, according to the Bank of East Asia (BEA).

At its second-half economic and market outlook briefing, the bank said exports will remain a key growth driver, supported by AI-related hardware demand whilst also expecting stronger consumption and investment to sustain the city's recovery.

"Hong Kong's economic recovery is gaining firmer footing," said Tristan Zhuo, chief economist at BEA.

BEA said private consumption has expanded for four consecutive quarters, whilst retail sales have recovered alongside stronger tourism.

It also expects the private residential market to continue improving, supported by stronger economic fundamentals, resilient rental demand, and a stable interest rate environment. The office market is also showing signs of stabilisation, the bank said.

BEA also expects the US Federal Reserve to raise rates once by 25 basis points in 2026, taking the upper bound of the federal funds target range to 4%.

It expects Hong Kong's prime lending rate to remain unchanged, although HKD interbank rates (HIBOR) could come under upward pressure if expectations of a US rate hike strengthen.

Separately, Jenson Peng, chief investment strategist at BEA, said the bank raised its year-end target for the S&P 500 Index to 7,870 but lowered its 2026 target for the Hang Seng Index to 27,100.

He said the recent pullback in Hong Kong equities could provide opportunities for a phased rebound in the second half of the year.