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Budget Speech

Economic Outlook for 2015

18.    The year 2015 will be a challenging year.  Amid improvement in the US economy, the US Federal Reserve Board is preparing to raise interest rates, running counter to the further easing measures pursued by the central banks of Europe and Japan.  The stance of the new Greek government has added uncertainties to the market.

19.    The drop in international oil prices is beneficial to Hong Kong and other net energy importers.  Excessive oil price volatility, however, will pose a real threat to the global economy and financial markets.

20.    The interaction of these factors will further complicate the external environment: (a) the US inflation outlook will be affected, making it more difficult to forecast the pace of interest rate rise; (b) rising deflation risks in Europe and Japan will add headwinds to the economic recovery; and (c) some oil exporting countries face huge pressures on finance and exchange rates due to geopolitical tensions and dropping oil prices.  All these macroeconomic factors will upset the stability of global financial markets.

21.    Emerging Asian markets are showing a better performance in general.  The Mainland's economic growth is relatively stable but faces downward pressure this year.  The global economy as a whole is likely to stay on a slow-growing path in the post-financial tsunami period.  This, amid a stronger US dollar, will continue to put a drag on Hong Kong's trade performance.

22.    Domestically, local consumption and investment sentiment will be dampened by the increased uncertainties over the US interest rate hike and weaker spending power of inbound visitors.  In the face of internal and external challenges, I forecast Gross Domestic Product (GDP) growth at one to three per cent in 2015.

23.    The labour market will hold largely stable.  But if the domestic sector continues to be trapped in a slow-growing path, the pace of job creation by enterprises will be affected.

24.    As regards inflation, with the softening of global commodity prices in the past year, imported inflation will remain mild.  Retail sales have weakened recently, and rental pressure is less than that in previous years.  I forecast that the headline inflation rate for 2015 as a whole will be 3.5 per cent with an underlying inflation rate at three per cent.



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