Economic Outlook for 2016

15.    Since the start of 2016, the global economic climate has continued to be unsteady, marked by increasing risks, amid the modest and patchy economic growth of advanced economies, downward pressures on emerging markets and heightened geopolitical tension.

16.    The US Federal Reserve Board started an interest rate increase last year, but the central banks of the Eurozone and Japan have maintained their quantitative easing policies and adopted negative interest rate measures.  The divergent monetary policies are causing volatility in the international financial markets and capital flows.

17.    Emerging economies will be under the dual pressure of falling commodity prices and suppressed financial markets.  The Mainland's economy will also face downward pressure.

18.    As for Hong Kong, local consumption and investor sentiment have been dented by concerns over the uncertainties associated with the US interest rate increases and the dimmer global economic outlook, the lull in external trade and the slowdown in inbound tourism.  The pressure may spill over into the job market and business operation of enterprises.  The value of total exports of goods and the number of visitor arrivals in Hong Kong have both recorded a year-on-year decline since mid-2015, and the fall is likely to be more severe in 2016.  I forecast Gross Domestic Product (GDP) growth in real terms at one to two per cent in 2016, lower than last year's growth.

19.    Given the subdued global commodity prices, imported inflation is expected to be relatively mild.  Slower economic growth and the adjustment in the property market will reduce rental pressure.  I forecast that the headline inflation rate for 2016 will be 2.3 per cent, with the underlying inflation rate at two per cent.