- Lower HKD interest rates supported investment sentiment, loan growth, and capital market activity.
- Developer credit risks have eased amid the Fed funds rate cuts.
- Rising tourist arrivals and positive wealth effects have boosted private consumption.
- The jobless rate is likely to peak amid improved consumption sentiment.
- Implication for forecast: We see upside to our 2025 GDP growth forecast of 3.0%.
Related Insights
- China: External strength, soft domestic demand17 Apr 2026
- Commodity price shock and Singapore15 Apr 2026
- Crypto Digest: War and cryptos07 Apr 2026
Click here to read the full report
Hong Kong’s real GDP grew 3.8%yoy in Q3, with sequential growth of 0.7%qoq from Q2. Rising tourist arrivals and positive wealth effects have boosted private consumption. Investment sentiment, credit demand, and capital market activity have continued to improve. Easing trade friction could be another upside. Against this backdrop, the jobless rate should peak soon.
Consumption and tourism
Private consumption expenditure rose from 1.9%yoy in Q2 to 2.1% in Q3. While the improvement was partly due to base effects, it was supported by a weaker HKD, a 12%yoy rise in Mainland tourist arrivals, and positive wealth effects from a stronger equity market. Hang Seng Index surged 33% in the first nine months of 2025, with average daily turnover reaching HKD258bn.
Large-scale events continue to attract visitors, and the Fed’s rate downcycle provides a favourable backdrop for Hong Kong’s retail sector. With another 50 bps of cuts expected by 1Q26, we forecast USD/CNY to reach 7.00. A softer HKD should further boost retail sales by improving visitor purchasing power and reducing outbound travel.
Unemployment
The unemployment rate rose to 3.9%, the highest level since the COVID-19 pandemic. However, we foresee the jobless rate peaking soon. Recent improvements in consumption and tourism performance (accounts for 14% of the labour force) should help stabilise hiring sentiment. Improving property market sentiment and the upcoming Northern Metropolis projects suggest construction recruitment should gear up soon.
Investment
Gross fixed capital formation (GFCF) increased from 2.9%yoy in Q2 to 4.3% in Q3. System loans have stayed in positive territory for the fourth consecutive month, the first sustained expansion in nearly three years. Lower HKD interest rates are expected to drive further growth into 2026. Loans to financials and investment companies rose 13.7% and 19.4% YoY, respectively. The Hong Kong Stock Exchange raised USD28bn in IPO proceeds as of October, making it the top global IPO destination.
With lower borrowing costs, the Hong Kong government may speed up debt issuance to support growth with manageable interest payments. The 2-year HKGB yield has dropped from around 3.5% in Q1 to 2.4% recently. Public debt is projected to rise from 9% to 16% of GDP over the next three years.
Property
Residential market sentiment has improved since Q1, supported by lower mortgage rates that have helped unlock pent-up demand. Eased property curbs are attracting more Mainland buyers, while policies for non-local students are boosting rental demand. Lower borrowing costs have largely offset the negative rental carry, encouraging investors to return to the market. This positive momentum is expected to continue alongside the Fed rate cut cycle.
Housing prices have risen 3.8% since May 2025, while unsold units have declined 8% year-to-date. However, the rebound is expected to remain moderate, as developers continue adopting flexible pricing strategies to clear inventory. Our property team projects housing price growth of 0–5% as the market moves into 2026.
Developer credit risk eases amid lowered FFR rate. The city's DBS Aggregate Credit Spread (DACS) index has fallen sharply by 33% in Q3, reaching its lowest level since 2021. Leveraged developers have seen their refinancing costs decline meaningfully, especially after the Fed’s two rate cuts. Beyond strong growth in a pickup in HK residential and commercial property sales, a revival in IPO fundraising has further supported liquidity conditions.
Trade
Real goods exports accelerated from 11.5% in Q2 to 12.2% in Q3. The city’s customs exports rose 13.4% in the first nine months of the year, driven by front-loaded orders for Chinese goods and strengthening trade ties with ASEAN countries. Such activities should gear up after the extended U.S.–China trade truce. Risk remains despite the recent Trump–Xi meeting easing short-term uncertainty.
Conclusion
Lower HKD rates will continue to stimulate investment and capital market sentiment, while reducing credit risks. A weaker HKD should further support inbound tourism and retail spending, providing additional momentum to growth.
Click here to read the full report
Nathan Chow 周洪禮
Senior Economist and Strategist - China & Hong Kong 高級經濟學家及策略師 - 中國及香港
[email protected]
Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.
Topic
Explore more
E & S FlashGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if the applicable assets fall within the definition of 'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.
Related Insights
- China: External strength, soft domestic demand17 Apr 2026
- Commodity price shock and Singapore15 Apr 2026
- Crypto Digest: War and cryptos07 Apr 2026
Related Insights
- China: External strength, soft domestic demand17 Apr 2026
- Commodity price shock and Singapore15 Apr 2026
- Crypto Digest: War and cryptos07 Apr 2026