Budget Speech

Economic Outlook 2011

16.      The economy still faces a number of challenges in 2011. The second round of quantitative easing by the US has increased the risks of inflation and asset-price bubbles in Asia. The sovereign debt crisis has yet to be fully resolved in the Eurozone. In addition, the European and the US economies face uncertainties on the recovery path. Deleveraging and high unemployment are expected to linger on. All these will pose challenges for the global economy.

17.      The relatively stronger growth sustained by the Mainland and Asian economies will continue to benefit Hong Kong. But the relatively fragile economic recovery of the US and Europe will make this year a testing time for the export performance of Asia and Hong Kong. I forecast GDP growth of four to five per cent for the year.

18.      The risk of rising inflation is mounting in Asia. The soft US dollar and possible sustained increase in global food and commodity prices will put more inflationary pressure on Hong Kong. On top of these, the continued rise in the Mainland’s food prices and local rentals are expected to have a more noticeable effect on our inflation this year. I forecast that the headline and underlying inflation rates for 2011 as a whole will average 4.5 per cent.

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