Aerial photo taken on May 29, 2022 shows a view of the International Commerce Centre (ICC) in south China's Hong Kong. [Photo/Xinhua]

International rating agency Fitch on Thursday predicted that Hong Kong's economy will rebound by 4 percent this year, following a contraction of 3.5 percent in 2022.

Removal of most pandemic-related restrictions has led to visible improvements in business activity and cross-border connectivity since early 2023, the firm said, adding that "We believe the economic recovery will endure well into next year."

Fitch forecasts growth of 3.5 percent in 2024, modestly above the pre-pandemic trend of around 3 percent.

Calling the region's credit fundamentals strong, Fitch affirmed Hong Kong's long-term foreign-currency issuer default rating at "AA-" with a stable outlook.

Hong Kong's ratings are supported by large fiscal buffers, robust external finances and high per capita income, Fitch said in a commentary about its rating action.

The ratings also reflect the closer alignment of governance and institutional management practices with the Chinese mainland, trends that have advanced steadily since 2019, said the agency.

In terms of currency stability, Fitch said it sees low risk to Hong Kong's linked exchange rate system with the U.S. dollar. The agency said Hong Kong's foreign exchange reserves totaled 429 billion U.S. dollars as of end-February 2023, equivalent to roughly 1.8 times the region's monetary base and 119 percent of gross domestic product (GDP).

Hong Kong banks benefit from healthy liquidity buffers, strong capitalization and stable funding, Fitch said, noting that "We believe these factors will make the sector more resilient to deposit flight and the loss in market confidence."

The sector's capital adequacy ratio stood at 20.1 percent at end-2022, near the top end of banking systems in the Asia-Pacific region, said the agency.

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