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Budget Speech by the Financial Secretary (1) (with photos/video)
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     Following is the full text of the Speech on the 2023-24 Budget delivered by the Financial Secretary, Mr Paul Chan, to the Legislative Council today (February 22):

Mr President, Honourable Members and fellow citizens,

     I move that the Appropriation Bill 2023 be read a second time.

Introduction

2. This is the first Budget of the current-term Government and also the first to be presented since Hong Kong's emergence from the epidemic and resumption of quarantine-free travel with the Mainland and the international community.

3. With a clear direction ahead and specific goals in mind, Hong Kong is in a new stage of the journey towards vigorously pursuing our economic growth, and moving to high-quality development and enhancing people's quality of life.

4. The current external environment remains severe and ever-changing and the Government has also endured a number of stress tests over the past few years. Yet, amid the adversities, the Government's financial position as well as Hong Kong's financial system have displayed remarkable resilience and remained healthy, and our community at large is stable.

5. The theme of this year's Budget is: Leaping Forward Steadily, Together We Bolster Prosperity under Our New Vision.

6. Our economy is at the early recovery stage, and members of the public as well as a large number of enterprises are still weighed down by tremendous pressure and require support. Meanwhile, in the face of intense competition and imminent development needs, we have to fully and speedily press ahead with high-quality economic development, which requires forward planning and a front-loaded approach. Overcoming resource constraints will require innovative solutions. Overall, we will take a "moderately liberal" fiscal stance this year. Hence, this is still a deficit budget. More than 80 per cent of the resources involved for the budget initiatives will benefit the general public and small and medium sized enterprises. We will support people in need to the best of our ability, and sustain the impetus to economic recovery in moving towards high-quality development. I will elaborate on this in the following chapters.

Economic Situation in 2022

7. In 2022, the external environment deteriorated markedly. With the Russia-Ukraine conflict driving up international energy and commodity prices and rampant global inflation, major central banks sharply tightened their monetary policies, posing a drag on the performance of advanced economies. The Mainland's economic growth also slowed amid the subdued global economy and the fluctuating epidemic situation. The International Monetary Fund (IMF) estimated that global economic growth decelerated to 3.4 per cent last year.

8. Amid moderated growth across major economies, decelerated growth in manufacturing and trading activities in Asia as well as the continued disruptions to cross-boundary truck movements between Hong Kong and the Mainland caused by the epidemic, Hong Kong's total exports of goods posted a notable decline of 13.9 per cent in real terms last year.

9. As for trade in services, exports of transport services and financial services both declined. Exports of travel services recorded a surge alongside the progressive relaxation of quarantine requirements for visitors, but remained far below the pre-epidemic level. Total exports of services declined mildly by 0.9 per cent for the year as a whole.

10. Domestically, the outbreak of the fifth wave of the epidemic early last year and tightened financial conditions weighed heavily on domestic demand. Nevertheless, with the local epidemic situation stabilising, and the Government's counter-cyclical measures and disbursement of consumption vouchers making key impacts, employment conditions improved continuously. Private consumption expenditure has gradually revived since the second quarter, but still recorded a drop of one per cent for the year as a whole. Dampened by the subdued economic outlook and rising borrowing costs, overall investment expenditure fell by 8.5 per cent.

11. With both external and domestic segments hit hard, the Hong Kong economy contracted by 3.5 per cent in 2022. Nevertheless, the labour market showed improvement, with the seasonally adjusted unemployment rate declining gradually to the latest 3.4 per cent after rising to 5.4 per cent early last year.

12. Inflation remained moderate in overall terms. While prices of individual items such as food, energy, and clothing and footwear recorded more notable increases, price pressures on other major components were largely contained. Private housing rentals also fell. Netting out the effects of the Government's one-off measures, the underlying inflation rate was 1.7 per cent for last year as a whole.

13. Dampened by factors including tightened financial conditions, slackened global growth and heightened geopolitical tensions, the Hong Kong stock market continued to correct during most of last year and trading activities shrank. Nevertheless, amid market expectations of a slower pace of interest rate hikes among major economies and an accelerated return of the local economy to normalcy, the Hang Seng Index rebounded strongly by the end of the year.

14. The residential property market underwent a marked correction last year. Flat prices dropped by 15.6 per cent during the year. The number of transactions plunged by almost 40 per cent to a low level of about 45 000. The non-residential property market also turned quiet.

Economic Outlook for 2023 and Medium-term Outlook

15. The market generally expects that the negative impact on the global economy of the sharp tightening of monetary policies by major central banks will become more apparent this year. Heightened geopolitical tensions will also add to the downside risks. Last month, the IMF forecast that global economic growth would slacken further to 2.9 per cent this year.

16. Sluggish external demand will continue to affect the Mainland's exports this year. Yet, the Mainland economy is resilient and has solid fundamentals. As economic activities quickly revive from the epidemic and the various economic stabilisation measures implemented over the past year gradually yield results, the growth of the Mainland economy is expected to accelerate visibly.

17. The economic growth of the US and Europe is expected to decelerate further this year. The market anticipates that US interest rates will rise further in the first half and stay elevated for some time, which is expected to further dampen demand. For the eurozone economy, economic sentiment remained subdued. The pace of economic growth will soften notably due to the continued impact of monetary policy tightening and the Russia-Ukraine tension.

18. Given the further weakening of growth momentum in advanced economies, Hong Kong's exports of goods will still face severe challenges this year. However, the accelerated growth of the Mainland economy coupled with the lifting of restrictions on cross-boundary truck movements should alleviate part of the pressure. As for exports of services, with the removal of the quarantine requirements for inbound persons and the normal cross-boundary travel between Hong Kong and the Mainland, the number of visitor arrivals is expected to see a strong rebound.

19. Domestically, as overall economic sentiment improves in tandem with the revival of economic activities and the rapid return of Hong Kong's exchanges with the Mainland and the world to normalcy, private consumption will increase. The better economic prospects will also be conducive to fixed asset investment, though tightened financial conditions will remain a constraint.

20. Having regard to the above factors, I forecast that the Hong Kong economy will see a visible rebound this year with growth of 3.5 to 5.5 per cent for the year as a whole.

21. In respect of prices, domestic cost pressures will increase alongside the economic recovery. Despite some moderation, external price pressures will remain notable this year. Taking all factors into account, I forecast that the underlying inflation rate and the headline inflation rate will rise to 2.5 per cent and 2.9 per cent respectively this year.

22. In the medium to long term, the Hong Kong economy will see abundant opportunities. Our country pursues high-quality development and will maintain reasonable growth. Other emerging Asian economies will also continue to register relatively fast growth. Meanwhile, advanced economies such as the US and the eurozone are expected to gradually return to their long term growth trends after the current challenges.

23. Hong Kong's advantages under "One Country, Two Systems" are unique. Besides, the current-term Government strives to forge a better integration of a "capable government" and an "efficient market", proactively strengthening competitiveness, identifying new impetus for growth and expanding economic capacity. The various measures will yield results gradually.

24. Considering all the above factors and taking into account the catch-up growth in the initial period arising from the continued return of economic activities from the epidemic to normalcy, I forecast that the Hong Kong economy will grow by an average of 3.7 per cent per annum in real terms from 2024 to 2027, higher than the trend growth of 2.8 per cent during the decade before the epidemic. The underlying inflation rate is forecast to average 2.5 per cent per annum.

(To be continued.)
 
Ends/Wednesday, February 22, 2023
Issued at HKT 11:14
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