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Budget Speech


Economic Performance in 2012

4.    The external environment was unfavourable in 2012.  In general, there were setbacks in external trade over the year, but domestic demand was stable.  Due to weak demand from the advanced economies, the overall economy saw sub-trend growth throughout the year.  GDP growth for 2012 as a whole was only 1.4 per cent, much lower than the average of 4.5 per cent over the past ten years.

5.    The weak fundamentals of the European and US economies weighed on the trade flows in Asia.  Hong Kong's exports of goods declined in the second quarter of 2011, the export performance remained weak in the first half of 2012 and improved slightly in the second half.  For 2012, exports of goods saw moderate growth by only 1.3 per cent in real terms.  Exports of services were also dragged down by the unfavourable external environment and grew by only 1.2 per cent in real terms in 2012.

6.    The domestic sector maintained stable growth in 2012.  Thanks to high employment and improved income, private consumption grew by four per cent in real terms for the year.  Despite rather cautious business sentiments, building and construction activities as well as machinery and equipment acquisition remained buoyant, further driving up overall investment spending by 9.1 per cent last year.

7.    Realising that our economy was facing a huge downward risk, I introduced a package of measures in my Budget last year which stimulated a GDP growth of 1.5 percentage points.  These measures were mainly to support small and medium enterprises (SMEs), help our people, preserve employment and lessen the impact of the economic slowdown.  The labour market remained stable in 2012.  Despite a slight rebound in the unemployment rate from its low of 3.2 per cent in mid-year to the latest 3.4 per cent, the labour market was still in a state of full employment.

8.    There was a real increase in pay in 2012, even though economic growth was slow and the impact of Minimum Wage has faded.  Averaged over the previous year, the pay and wage in the first three quarters of 2012 rose by 6.7 per cent and 5.9 per cent respectively, representing increases of 2.5 per cent and 1.9 per cent in real terms after discounting inflation.

9.    Inflation has dropped continuously since early last year.  This is partly attributed to the reduction in imported inflation due to the retreat of international food and commodity prices and easing inflation in our major import sources.  Another contributing factor is the slight reduction in local costs as a result of economic slowdown.  The headline inflation rate dropped from a peak of 6.4 per cent in the third quarter of 2011 to 3.8 per cent in the fourth quarter of 2012, averaging 4.1 per cent for 2012 as a whole.  Netting out the effects of the Government's one-off relief measures, the underlying inflation rate fell from 6.4 per cent in the fourth quarter of 2011 to 3.8 per cent in the fourth quarter of 2012, averaging 4.7 per cent for 2012 as a whole.



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