Hong Kong’s economy expanded at its fastest rate in nearly five years during the first quarter of 2026, signaling a robust recovery despite lingering uncertainties stemming from the ongoing conflict in the Middle East. Preliminary data released Monday showed the city’s gross domestic product increased 5.9% year-on-year from January to March, driven by a 2.9% rise compared with the previous quarter. This acceleration builds on the momentum from the final quarter of 2025, when a surge in consumption and investment was supported by a stock market rally and strong global demand for exports.

Financial Secretary Paul Chan Mo-po highlighted exports as a key contributor to the growth in the first quarter. Demand for electronics, particularly those linked to artificial intelligence technologies, helped counterbalance geopolitical challenges affecting the region. The Hang Seng Index also regained ground this quarter, reflecting improving investor sentiment. Leah Fahy, a senior China economist at Capital Economics, noted the unexpected strength of the GDP figures and pointed to signs of recovery in the property sector. She suggested that the overall economic outlook for Hong Kong is becoming increasingly positive.

However, concerns remain about the possible adverse effects of the war between the U.S., Israel, and Iran, which intensified in late February. Analysts warn that the conflict could disrupt trade flows and contribute to higher global interest rates, posing risks to growth. Given Hong Kong’s dollar is pegged to the U.S. dollar, the city remains particularly vulnerable to interest rate fluctuations in the United States.

A government spokesman acknowledged Tuesday that the prolonged tensions in the Middle East continue to present downside risks to Hong Kong’s economic prospects. Before the release of the GDP report, Moody’s Analytics economists cautioned that while external trade and tourism sectors are likely to sustain expansion, domestic demand could remain restrained. Households and businesses may adopt a more cautious stance amid elevated uncertainty.

Hong Kong authorities plan to issue a revised GDP forecast for 2026 by mid-May, which will provide further insight into the expected trajectory of the city’s economy amid these mixed influences.