Hong Kong’s retail sales nudged up in September helped by improved tourism from eased pandemic restrictions, government data showed on Tuesday, but an official warned that tightened financial conditions will pose a challenge for the outlook.

Retail sales in September rose 0.2 per cent from a year earlier in value terms to stand at US$3.6 billion. That compared with $3.63 billion in August, when retail sales slid 0.2 per cent from a year earlier.

Strict Covid-19 restrictions have weighed on Hong Kong’s economy since early 2020, grinding tourism to a halt and battering sales at bars, restaurants and shops.

The city scrapped a hotel quarantine requirement for all incoming visitors in September, after closely following China’s “zero-Covid” policy over the past two years.

The government said the stable domestic epidemic situation, improved labour market conditions and the government’s Consumption Voucher Scheme will continue to support demand.

“However, tightened financial conditions will increasingly offset the positive effects,” a government spokesman said.

Rising interest rates and a pessimistic economic outlook have put pressure on asset prices, dragging down private home prices in the city.

For the first nine months, the total retail sales value decreased 1.3 per cent compared with the same period last year, the data showed.

In volume terms, retail sales in September fell 1.5 per cent from a year earlier. That compared with a revised 3.0 per cent drop in August. For the first nine months of the year, the volume decreased 4.2 per cent from a year earlier.

The Chinese special administrative region has experienced a surged in travel after it ended mandatory hotel quarantine for international arrivals.

Tourist arrivals in September soared 568.5 per cent from a year earlier to 66,037. That compared with a 451.4 per cent jump in August.

Hong Kong’s economy contracted by 4.5 per cent in the third quarter from a year earlier, shrinking for the third consecutive quarter as trade performance remained weak.

However, the city’s seasonally adjusted unemployment rate eased to 3.9 per cent in the July-September quarter, improving for the fifth consecutive period.

In September, sales of jewellery, watches, clocks and valuable gifts, which before the pandemic relied heavily on tourists from the mainland, rose 8.4 per cent from a year earlier, following a 3.9 per cent expansion in August, the data showed.

Sales of clothing, footwear and accessories in September fell 7.2 per cent on year after an 8.8 per cent drop in August.

Online retail sales in September jumped 27.5 per cent year-on-year in value terms, compared with a revised 21.6 per cent growth in August. It was up 22.4 per cent for the first nine months of 2022.

• Editing by Jacqueline Wong, of Reuters.