China slowdown, trade uncertainty to weigh on HK’s 2025 growth

GDP growth is expected to slow further to 2.3% in 2025.

Hong Kong’s economy is set to slow further in 2025 as weak economic fundamentals in Mainland China and heightened trade uncertainties under the new Trump administration weigh on growth prospects, according to Nomura.

After a modest rebound in the fourth quarter of 2024, GDP growth is expected to slow further to 2.3% in 2025, down from 2.5% in 2024, according to preliminary data. Whilst net exports provided a boost last year, domestic demand remains fragile, and external risks are mounting.

In the final quarter of 2024, GDP rose 2.4% year-on-year (y-o-y), up from 1.9% in Q3, supported by an improvement in net exports. On a seasonally adjusted basis, the economy rebounded 0.8% quarter-on-quarter (q-o-q), recovering from a 0.1% contraction in Q3.

Despite the uptick in GDP, consumer spending remained under pressure. Retail sales contracted further in December, plunging 9.7% y-o-y compared to a 7.3% decline in November. When benchmarked against pre-pandemic levels, retail sales in December stood at just 73.1% of 2018 figures, down from 80.7% earlier in the year.

The property market continued to slide, with home prices down 7.1% in 2024, in line with forecasts. Prices are expected to drop another 5% in 2025. The unemployment rate remained stable at 3.1% in December.

Inflation remained low at 1.4% year-on-year in December. Prices for alcohol and tobacco rose 21.2%, utilities 11.4%, transport 2.1%, and dining 1.8%. Annual inflation was 1.8% and is expected to stay at that level in 2025.

Meanwhile, Hong Kong is set to endure a prolonged period of high interest rates, as the US Federal Reserve is not expected to cut rates until 2026. The city’s fiscal position remains under pressure, and analysts cautioned that the government may need to raise income taxes to address budgetary challenges.

Hong Kong’s economic outlook for 2025 remains uncertain, with the biggest risks stemming from renewed geopolitical and trade tensions under the Trump administration, prolonged weakness in China, and continued softness in the housing market.

However, faster Fed rate cuts, a rebound in China’s economy, and increased Mainland tourist arrivals could offer some relief.

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