Blog

Turbulent times

As at 31 December 2018, i.e. the first 9 months of the current financial year, the government's accumulative surplus amounted to $59 billion. Together with incomes received from salaries tax, profits tax and investment, as well as more stamp duty rates arising from vivid activities of the financial market, the accumulative surplus of the first 10 months by nature will increase.

However, similar to enterprises from different industries, government income and expenditure also have seasonal variations. The period of November to January of the following year is the peak season for tax collection, especially on corporate profits tax and employees' salaries tax. Investment return from the Exchange Fund is usually received at the end of January as well. On the other hand, quite a lot of departmental and capital expenditures are settled before the end of financial year. Together with other recurrent expenditures such as monthly salary, government spending in February to March in general is relatively higher than the revenue received in the same period.

This explains the reason why the government usually records a higher surplus in the first 9 to 10 months of a financial year. However, it cannot be interpreted as a full year indicator. To project the full year financial situation, expenditures in the remaining two months of the year have to be taken into account. In the 2019-20 Budget to be released on next Wednesday (27 February), I will announce the revised estimates of the government's accumulative consolidated surplus in the full year.

According to the preliminary economic data of the fourth quarter last year, the economy shows a clear downward trend. First of all, the trade conflict between China and the US showed its impact on Hong Kong's export performance in end 2018. By eliminating price changes, the export of goods had zero growth in the fourth quarter, which was a very drastic decrease when compared with the 6% average increase in the first three quarters. At the same time, consumer sentiment has also been affected. Retail sales volume in the fourth quarter only showed a slight increase of 2.1% year-on-year, which was far behind the 12% plus increase recorded in the first half of the year.

Based on the information currently available, the year-on-year economic growth of the fourth quarter of 2018 would be lower than 1.5%, which was significantly lower than the 3.7% increase in the first three quarters. It was also the weakest increase since the first quarter of 2016. The overall economic growth in 2018 is estimated to be around 3%, which is the lower limit of the range predicted in the last Budget, i.e. 3-4%. For the current quarter, according to the Report on Quarterly Business Tendency Survey issued by the Census and Statistics Department, the number of large-scale enterprises expecting their business situation to be worse is 12% higher than that expecting it to be better. The situation is not optimistic. The political and economic uncertainties and the pressure on the downfall of the global economy are acute. Therefore, we put much emphasis to support enterprises, preserve employment, stabilise economy, and alleviate the burden of citizens.

I will announce in the coming Budget economic growth in the fourth quarter of last year and economic outlook for this year. As of now, there is a possibility that the economic growth this year may be lower than the trend growth rate.

February 17, 2019