Budget statement says increased domestic consumption, ongoing mainland recovery crucial

Hong Kong is forecasting economic growth of 1.5 percent to 3.5 percent this year, the government announced in its annual budget statement on Wednesday, driven by resilient domestic demand and the ongoing pick-up in growth on the Chinese mainland.

The projections came in the first budget under Chief Executive Leung Chun-ying, as the special administrative region saw growth of just 1.4 percent in 2012.

Officials said the city's external trade in 2013 is expected to experience a knock-on from the strong economic fundamentals being felt across Asia, which helped fuel growth in the fourth quarter of 2012, along with increased mainland business.

However, they also warned the world economy could face headwinds from possible trade disputes and currency issues, which might have an effect on business in Hong Kong.

"The quantitative easing programs launched by the advanced economies will lead to fluctuations in the markets, ultra-abundant liquidity with unpredictable fund flows, and will potentially give rise to stronger protectionist sentiments," the budget statement said.

Away from external trade issues, the government said domestic consumption should contribute more to economic growth in 2013.

"Local consumption is expected to sustain modest growth due to the pick-up in construction and vibrant inbound tourism," it added. In 2012, the Hong Kong economy expanded just 1.4 percent due to a number of external trade setbacks. The export of goods and services edged up 1.3 percent and 1.2 percent in real terms, respectively.

Private consumption and overall investment spending grew 4 percent and 9.1 percent, respectively, during the same period.

To boost 2013 growth, various initiatives are being proposed, particularly those to support local small and medium-sized enterprises in key sectors such as trading and logistics, tourism and financial services.

The government also vowed to nurture certain emerging sectors, such as cultural and creative industries, the scientific research industry and the intellectual property trading industry, to further diversify Hong Kong's economy so it can better respond to ongoing global fluctuations.

Lee Kui-wai, associate professor in City University of Hong Kong's economic and finance department, told China Daily: "Hong Kong should strengthen the development of high value-added industries to catch up with neighboring countries.

"For example, the government should devote more funding to encouraging scientific research, and provide more industrial land to cater for the needs of long-term industrial development."

Despite tipping the economy to grow 1.5-3.5 percent, the budget also revealed that Hong Kong's headline inflation rate for 2013 is estimated to be 4.5 percent, with its underlying rate at 4.2 percent, which it attributed to increasing international commodity and asset prices, upward salary adjustments to the minimum wage, and persistently high rental levels.

Contact the writer at oswald@chinadailyhk.com