Budget Speech
Economic Outlook for 2022 and Medium-term Outlook
16. The market generally expects a further revival of the global economy this year, but the rampant Omicron variant has slowed the pace of global economic recovery recently. As affected by the impact of high energy prices and supply bottlenecks, global inflation has been pushed up significantly, and many central banks will have to tighten their monetary policies. Besides, the geopolitical situation is complex and volatile. All these factors have cast uncertainties over the global economic outlook. Last month, the IMF lowered its global economic growth forecast for this year to 4.4 per cent.
17. In the Mainland, the epidemic was contained effectively last year. Production activities have revived and the external trade has put up a strong performance. Last year, the growth rate of the Mainland economy was 8.1 per cent, which was faster than that of most economies. Looking ahead, although the Mainland economy is facing some downward pressure, its sound fundamentals along with ample policy room will support the steady economic growth in the Mainland, and will continue to be the growth engine of the global economy.
18. Last year, the US economy rebounded visibly. The market generally predicts that it will see further growth this year. However, in response to rising inflation, the Federal Reserve Board will likely raise interest rates several times and start to reduce the size of its balance sheet progressively within the year. Besides, fiscal policy support is expected to reduce from last year. These may affect the momentum of economic growth. The eurozone economy slowed again in the latter part of last year due to the resurgence of the pandemic. However, with the still accommodative monetary policy and supportive fiscal measures, it will likely continue to recover this year. The economic growth outlook for Japan and other Asian economies this year will hinge on the pandemic developments and the restrictive measures imposed by their respective governments.
19. Although further recovery of the global economy will lend support to Hong Kong's export performance this year, our economy and people's livelihood have been under immense pressure in recent months as the rapid worsening of the fifth wave of the epidemic, coupled with further tightening of various restrictive measures, led to drastic fall in people flow and seriously dampened consumer and economic sentiments. To win the fight against the epidemic, the Government will devote all-out efforts in stepping up testing and anti-epidemic work. Inevitably, economic activities, particularly the consumption-related sectors, will continue to be under intense pressure in the short term. Unemployment and underemployment situation will also deteriorate. The economic performance in the first quarter is not optimistic.
20. The successful control of the epidemic is the key to safeguarding our economy and people's livelihood. With the staunch support and unfailing assistance from our country, the Government and the whole community must join hands to fight the virus and win the battle promptly. As long as the recent wave of the epidemic can be gradually put under control, and the status of "dynamic zero infection" can be maintained down the road, consumption and investment demand will likely gather steam again. A stabilised epidemic situation will also create favourable conditions for the gradual and orderly resumption of quarantine‑free travel between the Mainland and Hong Kong, thereby injecting greater impetus into the economy. Having regard to the latest local and external situations as well as the stimulus effect of the fiscal measures, I forecast that Hong Kong's economy will put up a better performance in the second half of this year and achieve growth of 2 to 3.5 per cent in real terms for the year as a whole.
21. On inflation, external price pressures are expected to remain high and persist for some time, while domestic cost pressures will also increase gradually alongside the economic recovery. On the other hand, the upward pressure on residential rentals remains mild. Taking all factors into account, I forecast that the headline inflation rate and the underlying inflation rate will be 2.1 per cent and 2 per cent respectively this year. Although inflation pressure in Hong Kong remains moderate in overall terms, given that the supply of many daily necessities relies on imports, we should keep in view the impact brought by external inflation on people's livelihood if such inflation leads to an increase in the prices of imported goods.
22. In the medium term, the economic outlook for Hong Kong is positive. The sustained high‑quality development of our country's economy will serve as the key driver of global economic growth, and provide the most solid foundation for Hong Kong to prosper and develop. The 14th Five‑Year Plan establishes a clear positioning and direction for Hong Kong's economic development and supports Hong Kong for the development of the eight international centres and emerging industries. We may, by leveraging our advantages under "One Country, Two Systems", achieve co‑ordinated development with our neighbouring cities in the Guangdong‑Hong Kong‑Macao Greater Bay Area (GBA), thereby creating enormous business opportunities and ample room for Hong Kong's development. Besides, the Government has been committed to nurturing emerging industries over the past few years. Among them, the ecosystem of the innovation and technology (I&T) industry has become increasingly mature and is ready to contribute more to Hong Kong's economy and competitiveness in the coming few years. Regarding our traditional industries, financial services have been developing rapidly with a promising outlook, and will remain a driving force for our economic growth in future. To make the best of the opportunities, we must continue to build capacity and overcome the constraints on our workforce and land supply, and make concerted efforts to scale new heights in our economic development. Considering all these factors and taking into account the catch-up growth after the epidemic, I forecast that Hong Kong's economy will grow by an average of three per cent per annum in real terms from 2023 to 2026, slightly higher than the trend growth of 2.8 per cent during the decade before the pandemic. The underlying inflation rate is forecast to average 2.5 per cent.
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