HONG KONG: Hong Kong's economy grew 2.7 percent year on year in Q1 in the fifth consecutive quarter of economic expansion, while recent uplifts in both the stock and property markets point to warming market sentiment, Financial Secretary of the Hong Kong Special Administrative Region (HKSAR) government Paul Chan said on Sunday.

Hong Kong's benchmark Hang Seng Index had been rising for nine trading days in a row by May 3 to record an increase of 14 percent. Property trading picked up and prices stabilized as the HKSAR government's efforts to shore up the market paid off, Chan said in his blog.

Chan said that the Q1 economic growth was mainly driven by tourism, which remained robust. The city logged 25 percent more tourist arrivals in the first three days of this Labor Day holiday than a year earlier, he said.

Chan noted that the external environment remains complex and volatile. Cooling market expectations on US Federal Reserve rate cuts could affect Hong Kong's export and local investment willingness.

A strong Hong Kong dollar and changes in consumption habits of local residents and tourists could pose challenges to Hong Kong's retail and catering industries, he said.