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Budget Speech by the Financial Secretary (2)

Hong Kong Economic Performance and Outlook

Economic Performance 2008

9. As a result of the financial crisis and a slow-down in the global economy, Hong Kong's economy suffered a heavy blow in the latter half of 2008.  Gross Domestic Product (GDP) growth fell successively from 7.3 per cent in the first quarter, to 4.3 per cent in the second quarter, 1.7 per cent in the third quarter, and minus 2.5 per cent in the fourth quarter.  For 2008 as a whole, GDP grew by 2.5 per cent, lower than the trend growth rate over the past 10 years.

10. On the trading front, because of sluggish overseas markets and the global credit crunch, growth in Hong Kong's exports of goods decelerated last year, recording an increase of only two per cent in real terms.  Consumer sentiment has worsened visibly.  The drop in asset prices and bleaker economic prospects saw private consumption expenditure grow by only 1.8 per cent in 2008, a marked slow-down from the rapid growth in 2007.

11. Towards the end of last year, enterprises took a more cautious approach to investment and staff recruitment.  Gross domestic fixed capital formation dipped 0.3 per cent for the whole year.  After falling to a 10-year low of 3.2 per cent in the middle of last year, unemployment reversed to an uptrend.  The latest figure is 4.6 per cent.  The financial crisis also caused a rapid decline in the property market towards the end of last year.  Negative equity cases increased to more than 10,000 in the fourth quarter.  This represents two per cent of the total number of residential mortgages.

12. As a result of a surge in world food prices, local inflation went up for most of last year.  The rise in private housing rental earlier on, resulting from an increase in demand, also brought inflationary pressure.  With the fall in global food and energy prices and the decline in consumer demand in the second half of last year, the inflationary pressure on Hong Kong eased off notably by the end of last year.

13. The Budget that I presented last year and the package of relief measures announced by the Chief Executive in July 2008 helped lower headline inflation.  The International Monetary Fund also agreed that these measures had provided a timely stimulus to the economy and protected vulnerable groups from the consequences of high food prices and the effects of economic downturn.  The average inflation rate as measured by the Composite Consumer Price Index for 2008 was 4.3 per cent.  If there had not been relief measures, the inflation rate would have been 5.6 per cent.

Economic Outlook 2009

14. 2009 will be a very difficult year.  Both external trade and domestic demand are expected to remain subdued.  I forecast a decrease in GDP by two to three per cent for 2009, the first negative growth for a whole year since the Asian financial crisis in 1998.  With the economy sinking into recession, the employment situation is expected to deteriorate further.  As regards inflation, given weaker demand and a significant drop in global commodity prices starting from the second half of last year, I forecast that the headline inflation rate in 2009 will ease to 1.6 per cent.

15. In the midst of a worldwide economic downturn, we all hope for a full recovery as soon as possible.  Given the fluid economic situation and the varying effects of stimulus measures being taken around the world, it is likely that the global economy will take some time to return to normal.  It is hard to predict accurately now when recovery will come about.  I shall provide an update on the overall economic condition in the middle of this year.

(To be continued)

Ends/Wednesday, February 25, 2009
Issued at HKT 11:14


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