UOB hikes GDP forecast to 2.9% despite rising inflation, economic headwinds

Hong Kong faces weak external demand and low consumer confidence, amongst other challenges.

Hong Kong’s economy faces challenges from weakening external demand and shifting supply chains, which could reduce trade flows, along with low domestic consumer confidence, according to UOB.

UOB hikes its forecast for Hong Kong’s 2024 GDP growth to 3.1% from 2.9% despite the challenging outlook in H2 2024. 

“We expect the GDP to rise 3.2% year-over-year in the second half of 2024, factoring in modest sequential growth in the next two quarters,” Stephen Li, head of Global Markets for Greater China at UOB said.

Composite Purchasing Managers’ Index (PMI) has been in contraction since May, whilst headline and underlying Consumer Price Index CPI inflation averaged 1.7% year-on-year (YoY) and 1.0% YoY in January to July, respectively.

Prices of meals out, takeaway food, and transport increased notably, whilst energy-related items and durable goods continued to face downward pressure.

In the near term, inflation is expected to remain mild. UOB maintains its forecast for headline inflation at 2.0% for 2024.

“External price pressure is likely to ease as inflation in developed markets trends lower, but a weaker HKD will result in higher imported cost pass-through. Domestically, increases in business costs will be capped by a weak rental outlook,” Li said.