Hong Kong economy set to expand 1.4% for the full year; budget announced
28 February 2013
News, Hong Kong
By Toby Garrod
Despite turbulent external headwinds throughout the first half of 2012, Hong Kong's economy pulled through to expand 1.4% for the full year, according to figures released by the government on Wednesday (February 27).
Domestic demand spearheaded growth again, supported by positive wage growth and resilient asset prices, notes a report from HSBC Global Research.
“The newly-unveiled 2013-14 budget was balanced in both its fiscal profile and mix of expenditure initiatives. The economy's fundamentals look good for further acceleration in 2013, albeit alongside reviving inflationary pressures,” said the report.
Hong Kong's 2012 GDP data was released in conjunction with the government's 2013-2014 budget. The economy accelerated 1.2% on the quarter (seasonally adjusted) and 2.5% compared to a year ago, broadly in line with market consensus.
The previous quarter's real GDP data was revised upwards as well, to 0.8% QoQ from 0.6%, and to 1.4% YoY from 1.3%. For 2012 as a whole, GDP rose 1.4% YoY, compared with 4.9% in 2011.
By percentage point (ppt) contribution to headline GDP growth in 4Q12, private consumption came top with its 2.6ppt contribution. Investment came next, yielding 2.4ppt to headline GDP growth. Government spending added a marginal 0.3ppt to growth too. Trade (driven more by faster import growth) was the biggest drag, shaving 2.5ppt off headline GDP growth. If not for the positive contribution of net service exports (+0.7ppt), the drag from trade would have been even greater at 3.2ppt.
Citing an intrinsically unstable external environment, the government expects Hong Kong to be caught between global wars on three fronts, namely "currency", "trade" and "geopolitics". But, it expects Asia's fundamentals to stay strong alongside the Mainland recovery.
As such, barring "abrupt deterioration in the demand from the advanced economies", improving global trade flows, a "largely stable labour market... a pick-up in construction works and vibrant inbound tourism" should allow the Hong Kong economy to improve modestly to a growth rate of 1.5-3.5% in 2013.
Meanwhile, Standard & Poor's Ratings Services said on Wednesday (February 27) that Hong Kong's projected budgetary surplus for this fiscal year strengthens the government's robust fiscal position, which underpins the issuer credit rating (AAA/Stable/A-1+; cnAAA/cnA-1+).
The government estimates the consolidated surplus for fiscal 2012-2013 (ending March) at HK$64.9 billion, or 3.2% of GDP. The surplus reflects the resilient earnings and profitability of local enterprises, increased land sales, and lower expenditure than the government initially projected. The government estimates that fiscal reserves will be HK$734 billion by the end of the financial year, equal to 23 months of government expenditure. The build-up of reserves puts the government in a strong position to manage the downside risk for the global economy over the year ahead.
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