Hong Kong's growing shipments of artificial intelligence technologies have bolstered the city's economic growth outlook for the year.

Hang Seng Bank raised its 2026 gross domestic product forecast to 4.4% from its previous outlook of 4.0%, according to a research note published Wednesday.

"The upgrade partly reflects stronger-than-expected growth in H1 and we expect the Hong Kong economy to build on this momentum in H2 and beyond, supported by further AI-driven trade expansion," Hang Seng's Chief Economist Kelvin Lau and Senior Economist Felix Tong said.

Hong Kong's official GDP rose 4.3% year over year in the second quarter, largely supported by strong external trade driven by global demand for AI-related electronic products.

Exports in July and August -- led by electrical machinery, office machines, and data-processing equipment -- jumped 51.8% year over year, accelerating from 39.1% growth in the first half, the bank said.

Despite the upgrade, the outlook implies a mild moderation in momentum. Hang Seng expects second-half economic growth to ease to 3.8%, and slow further to 2.8% in 2027.

Domestically, private consumption expenditure moderated to 2.8% in the second quarter from 4.9% in the first quarter. Retail sales growth has also cooled, with July retail sales easing to 4.5% year over year, down from a 7.1% average in the second quarter.

Data from the Census and Statistics Department confirmed the cooling trend, showing June retail sales growth moderated to 4.6% from 7.9% in May. However, the luxury segment remained a bright spot, with sales of jewelry, watches, and valuable gifts jumping 20.1% in June.

To sustain its nascent domestic recovery, Hang Seng noted the city will need to attract more visitors, expand its labor force, and boost private investment.