The economy of the Hong Kong Special Administrative Region is tipped to expand 2.7 percent next year, supported by moderate growth in retail sales and merchandise exports, the Hong Kong General Chamber of Commerce (HKGCC) predicted.

HKGCC economist Doris Fung Hoi-ying said that by slashing the cost of capital, the US Federal Reserve’s rate cut on Wednesday will have a positive effect on the investment and property markets in Hong Kong. The business chamber expects the city’s economy will grow 3.2 percent for 2025.  

Looking ahead, with the latest US economic data showing rising inflation and unemployment, the US Federal Reserve needs to strike a balance to decide whether to continue cutting interest rates. The HKGCC expects more interest rate cuts in the second half of next year.

“I think this will be important and also positive for Hong Kong’s economy over the next year. We predict retail sales growth will rise from 0.8 percent in 2025 to 2 percent in 2026, underpinned by the rebound of domestic consumption expenditure,” Fung said at the press briefing on Thursday.

But the city’s oldest business chamber is worried that the accelerated application of artificial intelligence in the job market may push up the local unemployment rate to 3.9 percent next year, which may make Hong Kong residents to be more cautious in spending.

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Another GDP growth engine is the export sector. Fung said even if the Chinese mainland and the United States sign a trade truce, the artificial intelligence race between the world’s two largest economies may also affect Hong Kong’s export performance next year.

“This is because Hong Kong is a very important re-export hub for the mainland whereas the city’s major goods export components are electronic products and the parts and components,” Fung explained.

The HKGCC expects Hong Kong’s merchandise exports will grow 3 percent in 2026, down from its 14.3-percent growth rate forecast for this year.

The HKGCC, the SAR’s largest business chamber representing multinational companies, also revealed the findings of the HKGCC Business Prospects Survey 2025 on Thursday, showing 48.3 percent of interviewed small and medium enterprises (SMEs) and large enterprises share a positive outlook on business conditions in Hong Kong over the next 12 months, compared to 18.3 percent recorded last year.

“Companies are definitely more optimistic than last year, when US President Donald Trump was threatening to raise tariffs, which created a lot of uncertainties for businesses. This year’s survey might also have been influenced by the US and China agreement to a tariff truce, and peace talks between Israel and Palestine,” HKGCC Chairman Agnes Chan Sui-kuen said at the Thursday press conference.

“Sluggish global economic growth and geopolitical headwinds remain the key challenges for businesses in Hong Kong,” she added. “To offset this, companies are exploring new opportunities and diversifying their markets.”

Of the surveyed respondents, 41.1 percent said they plan to increase capital investment in the Association of Southeast Asian Nations region in 2026, followed by the Guangdong-Hong Kong-Macao Greater Bay Area — excluding Hong Kong SAR — (38.7 percent), the Middle East (26.2 percent), the rest of the Chinese mainland (24.1 percent), and Hong Kong SAR (18.6 percent).

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The survey interviewed 236 SMEs and large enterprises during October and November. Just over 23 percent of respondents represent professional and business services, followed by trading companies (18.6 percent), and the property and construction industry (9.3 percent).