Budget Speech by the Financial Secretary (2)

Economic Performance and Outlook

10. The expenditure and revenue proposals of government departments and related organisations are detailed in the Estimates.  Today, I will elaborate on those measures and items about which the public are more concerned.  First of all, I will give a brief account of our economic performance and outlook.

Economic Performance 2010

11. In the wake of the downturn in 2009, the economy in 2010 staged a full recovery at a faster pace than expected.  Thanks to the strong growth in the Mainland and Asia, the economy has surpassed the pre-tsunami level.  For 2010 as a whole, GDP grew by 6.8 per cent in real terms.

12. Underpinned by the reviving global trade flows, Hong Kong's exports of goods soared by 17.3 per cent in real terms for the year as a whole, quickly regaining the ground lost in the financial tsunami.  As the employment market improved and income increased, private consumption expenditure registered a significant growth of 5.8 per cent in 2010.  Benefiting from an upbeat business sentiment and the commencement of major infrastructure projects, the overall investment recorded a strong growth of 8.1 per cent last year.

13. With the upturn in the economy, the job market improved significantly in the past year.  The improvement had also much to do with the great resilience and flexibility of our labour market, as well as the proven effectiveness of the Government's measures to counter the financial tsunami.  The unemployment rate dropped from its peak in mid-2009 by 1.7 percentage points to 3.8 per cent recently.  The improvement can be seen in most trades and across all skill levels, indicating that the grass roots have really benefited from the robust economic growth.  Taking the full-time employees in the lowest tenth of income distribution as an example, their average monthly income in 2010 increased by five per cent over 2009.  After adjustment for inflation, there was still an increase of about two per cent in real terms.

14. We expect the economy to see solid growth this year.  As the unemployment rate has already fallen back to a relatively low level, there will be limited room for further significant decline.  We also need to pay attention to the effect of the implementation of statutory minimum wage on the unemployment rate.  The generally strong economic conditions should help us through this change.

15. Against a backdrop of a strong economic recovery, a soft US dollar and rising global food and commodity prices, inflationary pressure has gradually built up in Hong Kong this year.  The average inflation rate for 2010 as measured by the Composite Consumer Price Index was 2.4 per cent.  Netting out the effects of the Government's one-off relief measures, the underlying inflation rate was 1.7 per cent.  Taking into account the rapid economic expansion of 6.8 per cent last year, inflation for the year was rather moderate.  The significant improvement in productivity which continued throughout last year went some way towards alleviating the pressure of rising prices.

Economic Outlook 2011

16. The economy still faces a number of challenges in 2011.  The second round of quantitative easing by the US has increased the risks of inflation and asset-price bubbles in Asia.  The sovereign debt crisis has yet to be fully resolved in the Eurozone.  In addition, the European and the US economies face uncertainties on the recovery path.  Deleveraging and high unemployment are expected to linger on.  All these will pose challenges for the global economy.

17. The relatively stronger growth sustained by the Mainland and Asian economies will continue to benefit Hong Kong.  But the relatively fragile economic recovery of the US and Europe will make this year a testing time for the export performance of Asia and Hong Kong.  I forecast GDP growth of four to five per cent for the year.  

18. The risk of rising inflation is mounting in Asia.  The soft US dollar and possible sustained increase in global food and commodity prices will put more inflationary pressure on Hong Kong.  On top of these, the continued rise in the Mainland's food prices and local rentals are expected to have a more noticeable effect on our inflation this year.  I forecast that the headline and underlying inflation rates for 2011 as a whole will average 4.5 per cent.

(To be continued)

Ends/Wednesday, February 23, 2011
Issued at HKT 11:16