Strengthening ties with the mainland is crucial for Hong Kong to maintain its position as an international financial centre, according to an economic policy paper released by the University of Hong Kong (HKU) on Wednesday.

The "Hong Kong Economic Policy Green Paper 2024" also stresses the need for the city to expand its links with other economies.

Professor Douglas Arner, a contributor to the report, suggested that Hong Kong should focus on building external linkages while strengthening access to the mainland and exploring new opportunities in regions such as the Middle East, Africa and Latin America.

"Hong Kong has perhaps become overly inwardly focused, and there's a greater need to build on those external connections... One of our greatest opportunities lies in the context of RCEP (Regional Comprehensive Economic Partnership), which brings together most of the economies across East Asia," he said.

Meanwhile, the report also highlights the growing burden of healthcare expenditure on government finances in the SAR.

Professor Richard Wong, HKU's provost and deputy vice-chancellor, warned that with an ageing population, this could become a bigger problem for government coffers than housing.

He also warned that Hong Kong's economic outlook could remain bleak this year due to external factors.

"If the Chinese economy could be further relaxed and reformed according to national policies, the market, especially consumer sentiment, would further pick up. Hong Kong is expected to recover after next year, benefitting from China's stable, open and clearer economic policy environment," he said.

"But overall, 2024 should not be an optimistic year."

According to the university's quarterly macroeconomic forecast, the city's economy is expected to have grown by 3.3 percent last year.

It noted that economic growth is expected to have accelerated in the second half of last year, with GDP growing by 4.5 percent in the final quarter of 2023.

However, it predicted that Hong Kong's GDP would only grow by 2.1 percent in the first quarter of this year, and estimated that the city's economy would grow at a slower rate of between 1.9 and 2.7 percent this year.

"Elevated interest rates hold back consumer and investment sentiment, leading to a global economic slowdown in the first half of 2024," the university said.