As Hong Kong braces for the challenges of 2025, the city’s financial outlook is marked by a mix of cautious optimism and significant concerns. Financial Secretary Paul Chan Mo-po has highlighted the potential turbulence in the market, driven by geopolitical tensions and persistently high interest rates. Despite these challenges, Chan remains committed to fostering stronger ties with other economies and promoting the innovation and technology (I&T) sector as a pathway to resilience.

In the face of uncertainty, Chan pointed out on Sunday that Hong Kong has made “steady progress” over the past year. This progress is evidenced by an improving capital market sentiment, with the Hang Seng Index rebounding to the 20,000 level, reflecting an 18 percent increase in the stock market. The average daily transaction volume has also seen a significant uptick, surpassing HK$132 billion (approximately US$17 billion), which marks a 25 percent increase from the previous year. Such figures indicate a revitalization of investor confidence and a potential recovery trajectory for the financial sector.

Hong Kong continues to assert its position as a global financial hub, maintaining the fourth spot worldwide in terms of initial public offering (IPO) fundraising this year. This achievement underscores the city’s attractiveness to businesses seeking to raise capital and highlights its robust financial infrastructure. Furthermore, the economic indicators present a mixed yet hopeful picture: the annual economic growth forecast stands at 2.5 percent, while the unemployment rate is relatively low at 3.1 percent. Inflation remains mild, and residents have experienced a real increase in their incomes, suggesting a degree of economic stability.

Challenges in Retail and Catering Sectors

Despite the positive trends in the broader economy, certain sectors, particularly retail and catering, continue to face significant challenges. The city has welcomed over 44 million visitor arrivals this year, marking a 30 percent year-on-year increase, which should ideally benefit these sectors. However, the lingering effects of the pandemic and changing consumer behaviors have created hurdles that are not easily overcome. The recent resumption of a multiple-entry visa scheme for Shenzhen residents is a step towards revitalizing these industries, yet the road to recovery remains fraught with difficulties.

Looking Ahead: Geopolitical Tensions and Interest Rates

As Hong Kong looks towards 2025, the specter of geopolitical uncertainties looms large. Chan has articulated concerns that these tensions, coupled with a prolonged period of high interest rates, will contribute to a more turbulent market environment. The interplay between global politics and economic policy will be crucial in shaping the city’s financial landscape. Stakeholders will need to remain vigilant and adaptable to navigate the complexities that lie ahead.