2nd LD Writethru: Hong Kong sees 2.4-pct growth in 2015, growth to slow to 1-2 pct in 2016

A senior official said on Wednesday that Hong Kong witnessed an overall economic growth of 2.4 percent last year and the growth rate in real terms would be at 1 percent to 2 percent in 2016.

Tsang Chun-wah, finance secretary of the Hong Kong Special Administrative Region (SAR) government, made the remarks when delivering the 2016-2017 Budget.

Tsang said although the investment atmosphere turned more cautious, local consumption as well as expenditures on infrastructure and private construction projects remained resilient.

These, together with the stimulus effect of the relief measures introduced in last year's budget, led to an overall economic growth of 2.4 percent, he added.

It has been the fourth consecutive year that Hong Kong's economic growth was lower than the annual average of 3.4 percent over the past 10 years.

The economy faced significant downward pressure in the latter half of the year, further slowing down to a 1.9-percent growth in the fourth quarter.

Export performance in Asia was hit by the global economic setback and highly volatile financial markets in 2015.

Hong Kong's exports of goods recorded the first annual decline since 2009, down by 1.7 percent in real terms. Exports of services dropped by 0.6 percent, the first annual decrease since 1998.

Inbound tourism was weak and visitor arrivals dropped by 8 percent in the fourth quarter, down by 2.5 percent for the whole year. Retail sales slackened, recording the first annual decrease since 2009.

The unemployment rate averaged at a low level of 3.3 percent for the year as a whole. Wages and income improved generally.

Employment earnings for the lowest three income decile groups of full-time employees rose by 5 percent to 6 percent as compared with the year before.

But the recent decline in labor demand in the sectors related to inbound tourism is giving a cause for concern.

Given the slowdown of the local economy and the mild imported inflation, inflation has dropped for four consecutive years in Hong Kong.

The headline inflation rate in 2015 was 3 percent. Netting out the effects of the government's one-off measures, the underlying inflation rate, at 2.5 percent, was down by 1 percentage point from 2014, said Tsang.

Looking forward to 2016, the finance secretary said 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.

The U.S. 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.

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

As for Hong Kong, local consumption and investor sentiment have been dented by concerns over the uncertainties associated with the U.S. 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, said Tsang.

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.

Tsang forecasted that the headline inflation rate for 2016 will be 2.3 percent, with the underlying inflation rate at two percent.

The finance secretary estimated that uncertainties in the external economic environment will linger on in the next few years.

For the medium term, the average growth rate is forecast to be 3 percent per annum in real terms from 2017 to 2020, lower than the trend growth of 3.4 percent over the past 10 years and the underlying inflation rate is expected to average 2.5 percent per annum. Endit