Budget Speech

Economic Outlook 2010

14.      I am cautiously optimistic about Hong Kong's economic prospects for 2010. The global economy has not yet regained its vigour. There remain a number of uncertainties and potential pitfalls in the external environment. While the European and the US economies have returned to positive growth, their labour markets have yet to improve and their financial systems are still impaired. These economies may have undergone fundamental changes in their economic structures, and that will affect our future export performance.

15.      It remains uncertain whether some of the economies can grow robustly after the effects of the huge stimulus measures have subsided. If all countries and central banks were to exit from these measures at the same time, the potential shocks to the global financial and economic scenes would be a cause for concern. Mounting protectionism is also being seen among countries. These potential problems may put us on a bumpy recovery path in the year ahead. As such, we have to remain vigilant against the risk of a possible relapse and prepare to maintain social and economic stability.

16.      On the other hand, the return to a stronger growth in the Mainland economy may help offset the fragile recovery in overseas markets. I forecast GDP growth of four to five per cent for the year. The employment situation is expected to improve further. Deflation has been arrested, and mild inflation is expected to return this year. I forecast that the underlying inflation rate for 2010 as a whole will average 1.5 per cent while the average rate of headline inflation will be 2.3 per cent. I note that commodity prices have generally rebounded and that food prices in the Mainland have also risen. If the US dollar exchange rate remains soft and these price increases continue, it will add to imported inflation especially in the latter part of the year which in turn may impose a heavier burden on Hong Kong people.

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