Hong Kong (Reuters) -Hong Kong's economy grew 2.7% in the first quarter of 2023, John Lee, the leader of the Asian financial hub, said in a surprise announcement ahead of Tuesday's official release of the data, to snap four consecutive quarters of contraction.
Although exports continued to decline in the first quarter, faster growth in the economy of mainland China, coupled with acceleration of Hong Kong's aviation capacity, would provide further support, Lee said.
"Economy growth in the second quarter will be better than the first quarter," he told a regular news briefing. "The economy this year will be better than last year."
The latest quarterly figure compared to a 4.1% contraction in the previous quarter, Lee, who is Hong Kong's chief executive, said, prior to the scheduled 0830 GMT release of the data.
Economists from Barclays (LON:BARC) had expected a contraction of 0.9% in Q1 GDP, while Natixis and Hang Seng Bank forecast growth of 1.1% and 2.5%, respectively.
On a seasonally-adjusted quarterly basis, the economy grew 5.3% in the period from January to March, according to official data that confirmed Lee's earlier figure.
The government said inbound tourism and domestic demand would remain the major drivers of economic growth this year, and visitor arrivals should recover further as transport and handling capacity continue to catch up.
"The improving economic situation and prospects should boost domestic demand, though tight financial conditions will remain a constraint," a government spokesman said.
Battered by its own pandemic measures as well as spillover from China's stringent "zero-COVID" policy, Hong Kong's economy is expected to benefit this year from recovering consumer spending on the mainland and a rebound in travel.
All pandemic curbs have been lifted in the former British colony, where Lee has set priority on improving international competitiveness and attracting more overseas talent.
"Incoming data pointed to a recovery in the tourism and retail sectors, supporting the Hong Kong economy to return to the path of expansion for the year," said Thomas Shik, chief economist at Hang Seng Bank.
"That said, the relatively weak trade performance suggested that a global slowdown continued to pose challenges to the growth outlook."
Hong Kong also faces risks from high inflation and aggressive monetary tightening in advanced economies with higher borrowing costs and a pessimistic economic outlook hitting asset prices.
Its economy is expected to grow 3.5% to 5.5% this year after shrinking 3.5% in 2022, Financial Secretary Paul Chan said in a 2023/24 budget speech in February.
Barclays, Hang Seng Bank, DBS, Natixis and Standard Chartered (OTC:SCBFF) forecast Hong Kong's GDP to grow between 3% and 6.5% in 2023.
"Hong Kong's economy is set to embrace a cyclical rebound of better household spending and China's re-opening," said Gary Ng, senior economist at Natixis Corporate and Investment Bank.
"However, the pressure from external trade and investment may continue to linger in the short run due to the downturn in the tech cycle and high-interest rates."