HONG KONG (Reuters) -Hong Kong’s economy grew 2.7% in the first quarter from a year earlier, government data showed on Friday, thanks to a strong recovery of inbound tourism and domestic demand which would remain drivers for growth this year.

It was the first quarter of growth after four consecutive ones of contraction.

The city’s economy shrank 4.1% in the fourth quarter of 2022. On a seasonally-adjusted quarterly basis, the economy grew 5.3% between January and March.

The government has maintained its economic growth forecast for 2023 at between 3.5% and 5.5%, after a 3.5% decline in 2022.

“If the economic recovery continues, annual economic growth is expected to be close to the upper limit of the range,” government economist Adolph Leung told a news conference.

The improving economic situation and prospects should boost domestic demand, though tight financial conditions will remain a constraint, Leung said in a separate statement.

He added that domestic cost pressures may increase alongside the economic recovery while overall inflation will likely pick up in the rest of 2023, with the forecast rates of underlying and headline consumer price rises for the year staying at 2.5% and 2.9% respectively.

But Samuel Tse, an economist at DBS Bank, said it should be noted that the external headwinds stemmed from a slowdown of the U.S. and European economies.

“Also, the pace of recovery of the Chinese economy is unevenly distributed,” said Tse.

HSBC Global Research on Friday raised its economic growth forecast for Hong Kong to 5.0% in 2023 from 3.8% due to a more front-loaded recovery.

“Downward pressures still weigh on the economy. Weak global demand may keep goods trade muted while high interest rates could continue to dampen investment,” HSBC cautioned in a research note. “But we expect the reopening and recovery to more than offset these pressures.”