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Following is the full text of the Speech on the 2013-14 Budget delivered by the Financial Secretary, Mr John C Tsang, in the Legislative Council today (February 27):
Mr President,
I move that the Appropriation Bill 2013 be read a second time.
Introduction
2. Last month, the Chief Executive announced a series of new policies worth $60 billion in the first Policy Address of the current-term Government. I shall provide financial resources to fully support these initiatives. In this Budget, I am going to introduce proposals in four areas, namely developing the economy, optimising human resources, investing in infrastructure and caring for people's livelihood. I shall also share my thinking about future challenges posed by an ageing population. The package of measures in this Budget will have a stimulus effect of 1.3 percentage points. I hope that with these measures, we shall not only promote economic growth and invest in the future, but also improve employment opportunities and people's livelihood in a bid to address the aspirations of different sectors of the community.
3. This is my sixth year as Financial Secretary. Looking back, the Hong Kong economy survived a number of major challenges that threatened to bring our external trade and economic growth to a standstill, take unemployment to an all-time high and see investor confidence fall to an all-time low. I am honoured to have contributed to and steered through the economic rebound and consolidation, shoulder to shoulder with the Hong Kong community. But the road ahead remains bumpy. Challenges to Hong Kong's economic growth, commerce and trading, public finance, financial services, land and development matters abound. With resolve and commitment to serve for the coming five years, I shall continue to do my level best to nurture and grow our economy, to keep Hong Kong a land of opportunities, a place that values fair and just opportunities while caring for the less privileged: a place we truly call home.
Economic Performance in 2012
4. The external environment was unfavourable in 2012. In general, there were setbacks in external trade over the year, but domestic demand was stable. Due to weak demand from the advanced economies, the overall economy saw sub-trend growth throughout the year. GDP growth for 2012 as a whole was only 1.4 per cent, much lower than the average of 4.5 per cent over the past ten years.
5. The weak fundamentals of the European and US economies weighed on the trade flows in Asia. Hong Kong's exports of goods declined in the second quarter of 2011, the export performance remained weak in the first half of 2012 and improved slightly in the second half. For 2012, exports of goods saw moderate growth by only 1.3 per cent in real terms. Exports of services were also dragged down by the unfavourable external environment and grew by only 1.2 per cent in real terms in 2012.
6. The domestic sector maintained stable growth in 2012. Thanks to high employment and improved income, private consumption grew by four per cent in real terms for the year. Despite rather cautious business sentiments, building and construction activities as well as machinery and equipment acquisition remained buoyant, further driving up overall investment spending by 9.1 per cent last year.
7. Realising that our economy was facing a huge downward risk, I introduced a package of measures in my Budget last year which stimulated a GDP growth of 1.5 percentage points. These measures were mainly to support small and medium enterprises (SMEs), help our people, preserve employment and lessen the impact of the economic slowdown. The labour market remained stable in 2012. Despite a slight rebound in the unemployment rate from its low of 3.2 per cent in mid-year to the latest 3.4 per cent, the labour market was still in a state of full employment.
8. There was a real increase in pay in 2012, even though economic growth was slow and the impact of Minimum Wage has faded. Averaged over the previous year, the pay and wage in the first three quarters of 2012 rose by 6.7 per cent and 5.9 per cent respectively, representing increases of 2.5 per cent and 1.9 per cent in real terms after discounting inflation.
9. Inflation has dropped continuously since early last year. This is partly attributed to the reduction in imported inflation due to the retreat of international food and commodity prices and easing inflation in our major import sources. Another contributing factor is the slight reduction in local costs as a result of economic slowdown. The headline inflation rate dropped from a peak of 6.4 per cent in the third quarter of 2011 to 3.8 per cent in the fourth quarter of 2012, averaging 4.1 per cent for 2012 as a whole. Netting out the effects of the Government's one-off relief measures, the underlying inflation rate fell from 6.4 per cent in the fourth quarter of 2011 to 3.8 per cent in the fourth quarter of 2012, averaging 4.7 per cent for 2012 as a whole.
Economic Outlook for 2013
10. 2013 will be a challenging year. While the US has made some progress in tackling its fiscal problems, the pace of its economic recovery remains slow. Though the European debt crisis has temporarily stabilised, the economies there have already plunged into recession. Japan is beset by high debts, and it is difficult to tell whether the Japanese government's stimulus measures will help renew economic growth. Taking a macro perspective of the world's economy, continued modest growth is expected amid downside risks. The quantitative easing programmes launched by the advanced economies facing a prolonged economic downturn will lead to fluctuations in the markets, ultra-abundant liquidity with unpredictable fund flows, and potentially give rise to stronger protectionist sentiments. This, combined with various geopolitical factors, will cast a negative outlook for global trade.
11. The intricate external environment will remain unstable in the year ahead. The whole world will have to face wars on three fronts, namely "currency", "trade" and "geopolitics". As a highly open and small economy, Hong Kong will be impacted by the development of these wars to a certain extent.
12. Fundamentals in Asia remain strong and the Mainland economy regained its growth momentum in the fourth quarter of last year. Barring an abrupt deterioration in the demand from the advanced economies, Hong Kong's external trade should see some improvement. On the domestic front, buoyed by the largely stable labour market, local consumption is expected to sustain modest growth. The pick-up in construction works and vibrant inbound tourism will remain the driving force of domestic demand this year. I expect a modest improvement in our economy this year and forecast Gross Domestic Product (GDP) growth of 1.5 to 3.5 per cent for the year. This growth rate is still lower than the average over the past decade and there may be some upward pressure on the unemployment rate.
13. The inflationary trend will be affected by the internal and external environments as well as overall demand. On the external front, we must not overlook the risk of increasing international commodity and asset prices arising from excessive global liquidity. Moreover, new rounds of quantitative easing in Europe, the US and Japan may trigger another round of imported inflation. Locally, slow economic growth has eased the pressure on wages. However, given the upcoming upward adjustment to the Minimum Wage in the middle of this year coupled with the persistently high rental levels, inflation will face upward pressure. The average headline inflation rate for 2013 is estimated at 4.5 per cent, with the underlying inflation at 4.2 per cent.
(To be continued)
Ends/Wednesday, February 27, 2013
Issued at HKT 11:09
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