IMF Lowers Hong Kong's GDP Growth Forecast for 2025

The International Monetary Fund (IMF) has reduced its GDP growth forecast for Hong Kong in 2025 from 3% to 2.7%, citing risks associated with the city’s deeper integration with mainland China, Bloomberg reports.

The IMF expects economic growth to gradually slow further, reaching approximately 2.5% by 2029, according to a statement issued after an official visit by its staff. The report states that these challenges have exacerbated Hong Kong’s economic difficulties, placing the city “on a path of gradual but uneven recovery after a prolonged period of disruptions.”

Key Risks

The IMF highlighted several risks, including:

Economic and financial integration with China: Increasing reliance on mainland economic cycles and the housing market downturn could pose challenges.
Geopolitical tensions: Ongoing global geopolitical disputes further strain the city’s trade and logistics sectors.
Aging population: Hong Kong’s rapidly aging society could dampen long-term economic prospects.
Hong Kong itself recently revised its growth expectations toward the lower end of its previous range, citing declining exports and weakened consumption.

External and Internal Challenges

The IMF noted that sharper-than-expected slowdowns in China’s growth or volatility in global markets could suppress demand for Hong Kong’s goods and services. Despite these risks, the city’s financial system remains resilient. Consumer inflation is projected to “gradually rise and stabilize” at around 2.5% as economic sluggishness eases and the deflationary impact of low prices in China subsides.

Real Estate Sector Insights

The IMF staff concluded that declining property prices in Hong Kong were primarily driven by increased supply rather than high interest rates. They recommended that any loosening of measures should be carefully calibrated. “In the face of continued economic challenges and both external and internal headwinds, policies should focus on supporting domestic demand and mitigating risks,” the IMF advised.

In recent years, Hong Kong’s real estate sector has faced significant difficulties:

2024 Performance: GDP grew by just 1.8% year-over-year in Q3 2024, the slowest rate in five quarters. Over nine months, growth reached 2.6%, near the lower end of the official forecast range (2.5%–3.5%).
Housing Market: Home prices in September fell to their lowest levels since 2016. After a brief 1.1% uptick in March 2024, prices resumed their downward trend. In February, the government removed additional duties for foreign buyers and second-home purchases to stabilize the market.
Despite these measures, 30% of secondary market home sales in Q1 2024 were at a loss. According to Knight Frank, Hong Kong ranked last among 56 countries in global housing price indices for Q2 2024, with prices falling by 12.7%.

Future Outlook for Real Estate

S&P Global Ratings expects primary home sales volumes to rise in 2025, supported by lower mortgage rates and government incentives. However, developers face continued pressure on profit margins due to land acquisitions made during peak pricing periods.

Price Stabilization: Housing prices are expected to stabilize after falling nearly 30% from their 2021 peak. However, developers are likely to focus on offloading existing inventory, limiting price recovery.
Supply Trends: Hong Kong’s housing supply over the next three to four years already meets 80% of the Housing Bureau’s 10-year target, including current inventory, projects under construction, and upcoming developments.
Economic and Policy Considerations
The measures aimed at revitalizing Hong Kong’s economy and real estate market may not yield the desired outcomes unless supported by broader factors:

China’s economic recovery and lower interest rates from the Federal Reserve could provide relief.
Depreciation of the Hong Kong dollar might boost outbound tourism and foreign purchasing power.

While Hong Kong’s financial system remains robust, its economy faces significant challenges from external pressures, demographic shifts, and long-standing real estate woes. The city’s recovery will depend on navigating these hurdles while maintaining its position as a global financial hub.