Hong Kong's retail sales rose in October helped by improved tourism from eased pandemic restrictions and disbursement of a new batch of consumption vouchers,but the government warned of tightened financial conditions while releasing Thursday's data.

October retail sales rose 3.9% from a year earlier in value terms to stand at HK$31.9 billion ($4.10 billion). That compared with HK$28.1 billion in September, when retail sales climbed 0.3% 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.

"As long as the local epidemic situation remains under control and the various restrictive measures can be relaxed in an orderly manner, consumption-related activities should gradually regain momentum," a government spokesman said.

The government said improved labour market conditions and the Consumption Voucher Scheme will continue to support demand though tightened financial conditions will partly offset the effects.

The city is facing headwinds from high inflationary pressure and aggressive monetary tightening in advanced economies, while rising interest rates and a pessimistic economic outlook have put pressure on asset prices, dragging down home prices.

For the first ten months, the total retail sales value decreased 0.7% compared with the same period last year, the data showed.

In volume terms, retail sales in October rose 2.4% from a year earlier. That compared with a revised 1.4% drop in September. For the first ten months of the year, the volume decreased 3.5% from a year earlier.

While Hong Kong has relaxed social distancing measures put in place to curb COVID-19 infections, the border with mainland China has been largely closed since early 2020, choking off mainland tourism spending, a key driver of consumer growth.

However, tourist arrivals in October soared 760.9% from a year earlier to 80,524. That compared with a 568.5% jump in September.

Hong Kong's economy contracted 4.5% in the third quarter from a year earlier. It was the third consecutive quarter of year-on-year contraction, with decline widening from 1.3% in the second quarter.

Citing a deteriorating global growth outlook, the government delivered a more pessimistic full-year forecast, and now sees the economy contracting by 3.2%, having earlier predicted growth of between 0.5% and minus 0.5%.

The city's seasonally adjusted unemployment rate eased to 3.8% in the August-October quarter, improving for the sixth consecutive period.

In October, sales of jewellery, watches, clocks and valuable gifts, which before the pandemic relied heavily on tourists from the mainland, rose 13.6% from a year earlier, following a 6.8% expansion in September, the data showed.

Sales of clothing, footwear and accessories in October fell 5.4% on year after a 7.1% drop in September.

Online retail sales in October jumped 34.7% year-on-year in value terms, compared with a revised 26.8% growth in September. It was up 23.8% for the first ten months of 2022. ($1 = 7.7856 Hong Kong dollars) (Reporting by Donny Kwok and Twinnie Siu; Editing by Simon Cameron-Moore)