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Following is a question by the Hon Frederick Fung and a written reply by the Financial Secretary, Mr John C Tsang, in the Legislative Council today (January 13):
Question:
The Chief Executive said earlier in a forum that the Government should exercise prudent financial management and save the surplus, in order to tackle a "double dip recession" in economy which might appear in the middle of this year. In this connection, will the Government inform this Council:
(a) of the detailed reasons and justifications for the aforesaid prediction by the Government on this year's economic situation; whether it had made any specific economic analysis and reference to the views of other economists; and
(b) whether the Government has formulated any measure to tackle the aforesaid economic recession; of the financial resources required to be set aside; and whether it will affect the Government's Budget in next financial year, including whether it is necessary to suspend the relief measures provided to the middle and lower classes?
Reply:
President,
(a) Being a small and open economy, Hong Kong's economic performance will inevitably be affected by the external environment. The Government has mentioned a few times that as the current global economic recovery has yet to be on firm footing, especially with the advanced economies still facing considerable downside risks, Hong Kong's recovery process could still be rather bumpy going forward. In fact, the situation in the US is of particular concern. Given the sheer size of the US economy, it would be difficult for the emerging economies in Asia to replace the US in leading global economic recovery. According to past experience, double dip recessions are not uncommon in the US. The years 1973-75 and 1980-82 are examples of such a scenario. As for the present, the foundation of economic recovery in the US is still rather weak: the economic rebound remains mostly driven by various fiscal and monetary stimulus measures from the public sector, while the growth momentum within the private sector is not sufficient. Whether the US economy can sustain its growth after the withdrawal of these stimulus measures is still unknown. Also, the US financial systems are yet to recover, the housing market has yet to turn around visibly, and the ongoing deleveraging process will continue to weigh on private consumption and credit growth. If the US economy is to show a renewed relapse, it is very likely that Hong Kong's economic recovery will also be affected. Lately, many world-renowned economists have expressed concern over the US' economic outlook in 2010. Reportedly, Paul Krugman has recently indicated that the chance of the US falling back to recession in 2010 can be as high as 40%, while both Martin Feldstein and Joseph Stiglitz have opined that the odds of the US economy seeing a strong recovery in 2010 are small. The International Monetary Fund (IMF) holds a similar view that the global economic recovery will be weak, and that there are downside risks to the global economic outlook.
(b) Since 2008-09, we have introduced a series of measures to stabilise the financial markets, ease credit conditions, support enterprises, accelerate public works and create employment. On the fiscal side, several rounds of relief measures amount to some $87.6 billion, or 5.2% of GDP. These measures have provided a stabilising effect on the economy. The Government will continue to monitor the economic situation and, if necessary, introduce measures to ensure that the economic recovery is on solid grounds. We are also mindful that an appropriate exit strategy is very important as this will ensure sustainable economic growth.
With the pace of global economic recovery still unclear, the 2010 economic outlook for Hong Kong is unavoidably subject to uncertainties. The Government is now consulting the public on the 2010-11 Budget. We will consider the latest economic situation, adhere to the three basic principles of pragmatism, commitment to society and sustainability, and prudently formulate the next budget, maintaining a right balance among expenditure, revenue and fiscal reserves.
Ends/Wednesday, January 13, 2010
Issued at HKT 12:31
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