(Bloomberg) -- Hong Kong’s economy grew faster than expected in the first quarter, a tentative sign that the city’s post-pandemic recovery is stabilizing.

The city’s gross domestic product expanded 2.7% in the first three months of 2024, according to advanced estimates announced by the Census and Statistics Department on Thursday. That’s significantly higher than a forecast of 0.8% by economists surveyed by Bloomberg.

The strong pace is an encouraging sign for officials seeking to boost an economy weighed by weak demand in mainland China and high borrowing costs. The figure puts the economy on track to reach an official growth target of 2.5% to 3.5% for 2024.

“This shows Hong Kong has a nice momentum at the beginning of 2024, possible reasons include a rebound in stock market, signaling the economy is not as gloomy as we imagined,” said Samuel Tse, economist at DBS Bank. 

The number comes as Hong Kong is struggling to maintain its status as Asia’s premier finance hub and appeal as a tourist destination, after its reputation took a hit from strict pandemic restrictions and a national security crackdown.

On a quarter-on-quarter basis, GDP expanded 2.3%, quickening from the 0.4% growth in the previous quarter. 

A loosening of home-buying curbs bolstered sentiment and brought new home sales to a 11-year high in March. But investment demand is expected to remain dampened by elevated interest rates that follow the Fed’s higher-for-longer campaign to fight inflation.

“A longer period of tight financial conditions may have some dampening effects on economic confidence and activities,” a government spokesman said in a statement accompanying the release.

Household spending grew 1% in the first quarter, highlighting still-weak sentiment. Exports of services, which count tourist spendings, rose 8.1%, down from the 21.2% growth in the last quarter of 2023.

Read More: Hong Kong Home Prices Rise for First Time in Almost a Year

A strong local currency — pegged to the greenback — has also hurt inbound tourism and seen residents flocking to mainland China to dine and shop. 

But the linked exchange rate has helped burnish the Hong Kong dollar’s haven appeal amid the threat of sustained high US interest rates. The Hang Seng Index jumped 2.5% on Thursday to enter a technical bull market, in a rally that coincided with the strength of the local currency.

Read More: Hong Kong Stocks March Into Bull Market as Global Money Returns

“I believe the recent improvement in Hong Kong’s asset price market sentiment and the stability of the labor market will further improve consumer confidence,” said Thomas Shik, chief economist at Hang Seng Bank.

--With assistance from Felix Tam.

(Updates with more details and comments throughout)

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