Budget Speech

Economic Situation in 2020

7. Last year, the COVID‑19 pandemic ravaged the world, causing unprecedented repercussions on the global economy.  The International Monetary Fund (IMF) estimated that the global economy contracted significantly by 3.5 per cent for the year as a whole.  At the onset of the outbreak, governments around the world implemented stringent social distancing requirements and widespread lockdowns, plunging many major economies into a deep recession in the first half of last year.  Amid a sharp fall in external demand caused by the epidemic, Hong Kong's total exports of goods tumbled by 9.7 per cent year-on-year in real terms in the first quarter of last year.  Later, with a strong rebound in the Mainland economy after its epidemic situation was kept under control and the gradual recovery of other major economies in the second half of the year, Hong Kong's total exports of goods resumed growth in the second half of the year.  Yet, there was still a mild decrease of 0.3 per cent for the year as a whole.

8. Under the threat of the epidemic, inbound tourism was brought to a frozen state for most of the time last year amid extensive travel restrictions worldwide.  Exports of travel services fell drastically by 90.5 per cent for the year as a whole.  Exports of financial services saw a moderate growth in the period, but total exports of services still registered a record decline of 36.8 per cent for the year as a whole.

9. Given the volatile local epidemic situation, social distancing measures were tightened from time to time.  This, coupled with the weak job and income conditions, has dampened local consumer sentiments.  Private consumption expenditure dropped significantly by 10.1 per cent for the year as a whole despite some narrowing of the decline in the second half of the year.  Amid the highly uncertain business outlook, investment expenditure fell by 11.5 per cent.

10. Hong Kong's overall economy contracted substantially by nine per cent in the first half of last year.  While a slight improvement was seen in the third quarter, it has been hit again by the epidemic since the latter part of the fourth quarter.  For 2020 as a whole, the economy contracted by 6.1 per cent, the largest annual decline on record.  It is also the first time for Hong Kong to register two consecutive years of negative growth.

11. The labour market deteriorated sharply.  The seasonally adjusted unemployment rate went up from 3.3 per cent in the fourth quarter of 2019 to seven per cent in the latest period, the highest in close to 17 years.  Amid the epidemic, the consumption- and tourism-related sectors were hit hard.  The unemployment rate of the retail, accommodation and food services sectors combined rose to 11.3 per cent.  In particular, the unemployment rate of the food and beverage services sector reached a high level of 14.7 per cent.  The unemployment rate of the construction sector also reached a double- digit level.  Household incomes fell markedly in the year.

12. Amid a lacklustre economy, pressures on consumer price inflation were modest.  Netting out the effects of the Government's one-off measures, the underlying inflation rate was 1.3 per cent for last year as a whole, down 1.7 percentage point from the year before.

13. As for the property market, the residential property market was generally stable last year. Prices of commercial and industrial properties fell visibly from their peak in 2019, and transaction volume dropped to a record low.  Following the relaxation of macro- prudential measures for mortgage loans on non-residential properties by the Hong Kong Monetary Authority (HKMA), as well as the abolition of the Doubled Ad Valorem Stamp Duty on non- residential property transactions by the Government, there was a slight rebound in transactions in the latter part of last year.