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Go Forward under Pressure, Seek Progress While Maintaining Stability
Led by the Chief Executive, I attended the Policy Address District Forum with several other principal officials yesterday. Participants expressed views and opinions on various topics which are related to daily life, including how to effectively increase land and housing supply and improve the living environment; they were also concerned with Hong Kong's economic situation and the development of industries. Some participants commented that measures such as consumption vouchers were effective in stimulating local retail sales and stabilising the economy and employment, particularly at a time when our exchanges with other places have yet fully resumed normal.
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| Led by the Chief Executive, I attended the Policy Address District Forum with several other principal officials yesterday. |
The global economic outlook is worsening. Inflation in the UK reached 10.1% in July, the highest in four decades; inflation rates in the US and the Eurozone also stood at levels over 8%. As a result, many advanced economies are under huge pressure to raise interest rates to curb inflation. For example, the US Federal Reserve has already raised interest rates four times this year, altogether by a total of 2.25%. It is the expectation of the market that the Federal Reserve would pursue another significant rate hike at its meeting next month.
The external environment has affected Hong Kong's market in various ways. With the US having repeatedly raised interest rates, the Hong Kong Interbank Offered Rates (HIBORs) have also increased. The overnight HIBOR rose from 0.06% in mid-March to over 1% recently, while the one-month HIBOR, which is commonly used as a benchmark for residential mortgage loans, rose from 0.28% to 1.85%. However, with abundant liquidity in the local market, the rise in HKD interest rates has been less significant than that of USD rates, resulting in both HKD overnight and one-month HIBOR being lower than USD rates by around 0.5% and 1.2% respectively. But if the US raises interest rates again next month and HIBOR rises further, it is likely that Hong Kong's deposit and lending rates, including the prime rate, may also increase accordingly.
Interest rate hikes and geopolitical tensions have put pressure on financial markets as well as weakened the momentum and demand of the global economy. Meanwhile, cross-boundary cargo flows between Hong Kong and the Mainland have been disrupted by the epidemic. In this light, figures of Hong Kong's merchandise exports in July, which will be published soon, are expected to register a year-on-year decline in three consecutive months.
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| Led by the Chief Executive, I attended the Policy Address District Forum with several other principal officials yesterday. |
In view of external pressure and the on-going epidemic, the Hong Kong economy is moving forward under pressure. We must protect ourselves from the potential risks emanating from the external environment, and at the same time make every effort to stabilise the domestic economy and strive to go forward. In recent months, the local employment situation has improved slightly, with the unemployment rate in May to July being 4.3%, down by 1.1 percentage points from the preceding three-month period (i.e. February to April). During the same period, the underemployment rate dropped by 1.6 percentage points to 2.2%, a half-year low. For the economy as a whole, we have earlier lowered our economic growth forecast this year to -0.5% to 0.5%. Yet, considering that the economy has already contracted by 2.6% in the first half of the year, this means that, should epidemic situation remain largely under control, economic activities in the second half of the year will hopefully see some improvements. Our economy is still resilient.
On inflation, even though major external markets see a high inflation threat, the situation in Hong Kong is largely stable. The Composite Consumer Price Index (CPI) rose by 1.5% in the first half of the year. Although the index registered enlarged increases in May and June, and is expected to rise in July, the inflation forecast for the full year remains broadly moderate, at 2.1%. Some may ask the following question: why does inflation in Hong Kong still remain at a comparatively low level? In short, the main reason is that the compositions of consumer spending and the relevant indices differ from place to place. Elevated international energy prices have intensified inflation in Europe and the United States, but energy items only account for about 3% of Hong Kong's CPI. Changes to the price of the relevant items have relatively little impact on the overall CPI. Housing expenditures, which account for 40% of our CPI, have continued to decrease recently. As for food prices, which account for 27%, the supply and distribution of fresh food and vegetables from the Mainland have remained stable, thanks to the steadfast support and care by the Central Government. Thus related price increases have come down a bit from the peak in March.
Faced with headwinds caused by internal and external factors, Hong Kong's economy is moving forward under pressure. The HKSAR Government is making every effort to keep the epidemic under control and stabilise the economy at the same time. The epidemic has lasted for more than two and a half years. With more widespread vaccination as well as enhancements to medical treatment and isolation facilities on the one hand, and the implementation of precise disease prevention and control measures based on science and evidence on the other, the conditions to stabilise the economy have become more favourable. History has told us that in the middle of difficulty lies opportunity; and we must seize opportunities when they arise. With different challenges and obstacles ahead of us, we must always get well prepared to respond swiftly to short-term problems and challenges, and make good planning for the medium to long term. Many industries and members of the public have called for further strengthening the planning and support for the innovation and technology (I&T) industry and the relevant manpower; and enhancing local talent development while attracting more enterprises and talents from abroad to come to Hong Kong. With new thinking and innovative policies, we will put more efforts to promote economic development so that young people as well as talents and enterprises from different sectors can benefit from participating more widely in the I&T and other industries.
August 21, 2022
