13.     I am cautiously optimistic about Hong Kong's economic prospects for 2008. While the slowdown in growth of advanced economies in Europe and the US will have some impact on the economies of emerging markets and the Mainland, the sustained rapid economic growth of the Mainland and its increasingly intensified economic integration with Hong Kong will greatly promote our economic development and cushion the impact of the slowdown on Hong Kong. The economic fundamentals in Asia remain strong, which will help to improve our external trade performance and consolidate our position as Asia's world city. Local interest rate cuts, following those in the US, will also stimulate economic growth.

14.     Moreover, Hong Kong's economy has staged a strong recovery over the past few years, with a marked improvement in employment and a rise in asset prices. The financial position of most enterprises and individuals has improved, and consumer sentiment and investor confidence are strong. Domestic demand will very likely remain a major driving force of economic growth in 2008.

15.     Taking all these factors into account, and in the absence of unexpected serious incidents or major external shocks, Hong Kong's economy will continue to record solid growth in 2008. I forecast GDP to increase by four to five per cent, lower than that in the past four years but still higher than the average trend growth rate for the past ten years. I expect that the unemployment rate will remain at a relatively low level.

16.     I am optimistic about our economic prospects over the medium term. Hong Kong will continue to move up the value chain in services provision and will intensify economic integration with the Mainland, consolidating its role as a financial, business, trading, services and tourism hub of the region. Furthermore, we will continue to tap new opportunities in emerging markets. I estimate that the annual average growth rate will be 4.5 per cent in real terms for the period 2009 to 2012.

17.     As regards inflation, given continued economic expansion and high global commodity prices, the underlying inflation rate in 2008 is estimated to rise to 4.5 per cent, while the inflation rate forecast will average four per cent over the following four years. I forecast that upon implementation of the various one-off measures proposed in this Budget, the inflation rate will fall to 3.4 per cent in 2008.

18.     I realise that inflation has increased the burden on citizens. Rising food prices, while affecting everyone, hit those with low incomes hardest. I hope that the measures proposed in this Budget will help to relieve the burden of citizens, especially the disadvantaged, so that all can share the fruits of our economic growth.

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