Financial Secretary Paul Chan said in his Budget speech today that even though Hong Kong’s export performance will be affected by the external environment, the city’s economy will see sustained and solid development in the medium term.

He made the statement while analysing Hong Kong’s economic situation. Pointing out that the city’s economy returned to normalcy in 2023, he said the economy grew 3.2% in the year and incomes of the general public recorded growth in real terms.

Private consumption expenditure increased 7.3% in real terms last year. Overall investment expenditure also rebounded, by 10.8%, alongside the economic recovery.

Visitor arrivals bounced back sharply, to about 34 million last year, with fourth-quarter arrivals recovering to 58% of the same period in 2018.

Exports of travel services soared for the year, while exports of transport services increased in tandem, bringing about notable growth of 21.2% in total exports of services for the year as a whole.

Nonetheless, Mr Chan stressed that the challenging external environment continued to affect Hong Kong’s export performance. Plus, heightened geopolitical tensions severely undermined economic confidence around the world and central banks of the advanced economies raised interest rates sharply to tame inflation.

The International Monetary Fund (IMF) estimated that global economic growth slowed to 3.1% last year. Against this backdrop, Hong Kong’s total goods exports fell notably by 10.3% last year.

The city’s labour market continued to improve as the seasonally adjusted unemployment rate declined from 3.5% in the fourth quarter of 2022 to the latest 2.9%. What’s more, the median monthly employment earnings of full-time employees increased 8.6%, year-on-year, in the fourth quarter of last year.

Inflation remained moderate in overall terms. Netting out the effects of the Government’s one-off measures, the underlying inflation rate was 1.7% last year.

The local stock market consolidated through most of 2023, and trading activities shrank.

As for residential property, the Financial Secretary said that market sentiment has become very cautious since the middle of last year amid rising interest rates and an external environment fraught with uncertainties.

Flat prices fell 7% during the year and the number of transactions declined by 5%, to a low level of about 43,000. The non-residential property market was largely quiet.

As for the economic outlook for 2024 and the medium term, Mr Chan, once again, emphasised that he external environment remains complicated.

Geopolitical tensions will continue to impact international trade and capital flows, and may cause disruption to global supply chains, he said.

Additionally, sharply tightened financial conditions over the past two years will continue to constrain the growth rate of advanced economies. That said, the market widely believes that the US Federal Reserve will start cutting rates this year.

Last month, the IMF forecast that global economic growth would remain at 3.1% this year, below the average annual growth rate of 3.8% between 2000 and 2019.

Even though the Mainland’s export performance this year will continue to be affected by the external environment, Mr Chan explained that its economy is resilient, with solid fundamentals.

He said: “Our country’s measures for boosting the economy are progressively taking effect, and there is still sufficient policy room to further support the economy. Domestic demand should improve, and the Mainland economy is expected to register steady growth this year.”

Among advanced economies, the US this year is expected to realise lower economic growth than last year, as the lagged effects of rate hikes over the past two years continue to surface.

Nevertheless, Mr Chan stated that if the Federal Reserve, as expected, starts cutting interest rates, there would be some support for the economy.

As for Europe, he said economic growth is expected to remain weak this year amid geopolitical tensions and the lack of significant improvement in external demand.

The external environment will continue to put pressure on Hong Kong’s exports of goods. But global monetary conditions may ease progressively over the course of the year, which would bode well for export performance.

On the other hand, with the continued revival of handling capacity, particularly air passenger capacity, and the Government vigorously promoting a mega events economy, visitor arrivals are expected to increase further, driving growth in exports of travel and other related services.

Moreover, the Financial Secretary underscored that rising incomes among the general public will continue to support private consumption. Successive government measures will help lift consumption sentiment as well and fixed asset investment should also increase alongside continuing economic growth.

“Having regard to the above factors, we forecast that the Hong Kong economy will expand further this year, with growth of 2.5 to 3.5% in real terms for the year as a whole.

“Domestic cost pressures are expected to increase alongside the economic recovery. External price pressures, however, should ease further, though persisting geopolitical tensions may pose upside risks.

“We forecast an underlying inflation rate and headline inflation rate of 1.7% and 2.4%, respectively, this year.”

In the medium term, Mr Chan revealed that Hong Kong’s economy will see sustained and solid development and more importantly, he said the country’s focus on promoting high‑quality development will provide the city with ample room to grow.

“The National 14th Five‑Year Plan has set a clear positioning for Hong Kong’s development of the 'eight centres'.

“Future prospects will be bright, as long as Hong Kong steadily forges ahead by leveraging its unique advantages under 'one country, two systems', proactively integrates into the overall national development, aligns with national development strategies, and continues to perform the role of an important node in the domestic and international dual circulation of our country.”

Mr Chan added that the Government’s efforts in expanding economic capacity, enhancing competitiveness and cultivating new growth areas will also enable Hong Kong to seize opportunities when the global economic situation improves, enhancing its medium- to long-term growth momentum.

“Based on the above considerations, we forecast that the Hong Kong economy will grow by an average of 3.2% a year in real terms from 2025 to 2028. The underlying inflation rate is forecast to average 2.5% a year.”


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