Economy grows 6.8 per cent but inflation looms as major concern: FS

     Hong Kong's economy grew strongly by 6.8 per cent in real terms in 2010 but rising inflation looms as a major issue to tackle in 2011, the Financial Secretary, Mr John C Tsang, said today (February 23) in his 2011-12 Budget speech.   
     Mr Tsang said the economy staged a full recovery at a faster pace than expected in 2010 thanks to the strong growth in the Mainland and Asia.

     Hong Kong's exports of goods soared by 17.3 per cent in real terms in 2010, while private consumption spending grew by  5.8 per cent and investment spending grew by 8.1 per cent.

     The job market also improved significantly in the past year, with unemployment dropping to 3.8 per cent recently ¡V 1.7 percentage points lower than the mid-2009 peak.

     Mr Tsang said the strong economic recovery, a soft US dollar and rising food and commodity prices around the world would cause inflationary pressure to gradually build up in Hong Kong this year.

     He said 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.

     For 2011, the Financial Secretary forecast inflation of 4.5% with GDP growth of 4 to 5 per cent.

     For the medium term, annual average growth is estimated at 4 per cent in real terms for the period 2012-15, with underlying inflation averaging 3.5 per cent.  

     "The risk of rising inflation is mounting in Asia," he said.

     "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."

     He said that in the short term, the Government would strive to ease domestically generated price pressure by forestalling property market exuberance, preventing excessive credit growth and pursuing a prudent fiscal stance.

     Efforts would also be made to diversify the sources of food imports.

     Mr Tsang unveiled plans to issue $5 billion to $10 billion worth of inflation-linked retail bonds (iBond) to provide Hong Kong residents with another investment option for coping with inflation while promoting the development of the local retail bond market.

     "Our preliminary plan is to issue iBond with a maturity of three years to Hong Kong residents," he said.

     "Interest will be paid to bond holders once every six months at a rate linked to the inflation of the last half-year period.

     "The Hong Kong Monetary Authority is working out the implementation details and formulating the sales arrangements, with a view to launching the bonds in six months."

     The Financial Secretary announced $18.4 billion worth of one-off relief measures to help combat the impact of inflation and rising prices on people¡¦s livelihood.

* A $1,800 grant to each residential electricity account at a cost of $4.7 billion

* A rates waiver for 2011-12, up to a ceiling of $1,500 per quarter for each rateable property, at a cost of $9.9 billion;

* Two months¡¦ rent for those paying public housing rental, and other rent concessions for specific groups at a cost of $1.9 billion

* Extra allowance to Comprehensive Social Security Assistance (CSSA) recipients, equal to one month of the standard rate CSSA payments; and an extra allowance to Old Age Allowance and Disability Allowance recipients, equal to one month of the allowances at a cost of $1.9 billion.

     On recurrent measures, tax allowances for children and dependent parents and grandparents would also be increased at a cost of $1.22 billion a year.  

     Mr Tsang said another challenge for Hong Kong in 2011 would be the risk of asset-price bubbles.

     He said the most effective medium to long term solution to the property market problems was ensuring steady and adequate land supply.

     He announced new measures to increase land supply that would see specifying in the Application List four residential sites initiated for sale by the government in 2011, and a further five sites added to the Application List specifically for the construction of small and medium-sized flats.

     He said the total number of residential sites available for sale next year would be 52, including 18 new sites and 34 sites rolled over from last year's Application List.

     "This will altogether provide some 16 000 residential flats, an increase of more than 70 per cent over the 9 000 or so flats provided in 2010-11," he said.

     Mr Tsang said the Government would also explore new ways to increase land supply, such as reclamation on an appropriate scale outside Victoria Harbour and rock cavern development.

Ends/Wednesday, February 23, 2011
Issued at HKT 13:07