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Financial Secretary


Walking together

Today is Mother’s Day, a day to express gratitude to our mothers for taking care of the family. Many of us might have arranged different celebration activities with family and friends on this special occasion. On the road of fighting the epidemic in the past two years or so, we have learned to treasure the time we share with family and friends. And I trust many of us have their cooking skills improved too.

As the epidemic gradually subsides, the social distancing measures have been relaxed by phases. Coupled with the boosting effect of the consumption vouchers, we could see improvement in market sentiment over the recent two long weekends, benefitting the businesses of restaurants and retail merchants.

Yet, the COVID-19 epidemic continues to pose pressure on people’s livelihood, societies and economies around the world. The Hong Kong economy contracted by 4% in the first quarter this year from a year earlier, ending an improving trend for four consecutive quarters. Meanwhile, private consumption expenditure fell by over 5%, fixed investment fell by over 8% and total exports of goods fell by 4.5%, indicating that the situation does not look good.

Taking a closer look at the domestic market, the value of retail sales fell by 13.8% in March and decreased by 7.6% for the first quarter as a whole. Food and beverage businesses were under particular pressure, with total restaurant receipts in March at only $3.93 billion, the lowest monthly figure on record; and those for the first quarter at $15.2 billion, the lowest in the past 16 years.

These figures reflect the immense impact on the economy at the peak of the fifth wave of the epidemic. Although we expect that economic data will show some improvement as the epidemic is gradually brought under control and economic activities resume slightly, the fact that it will take time for the domestic economy to recover and the continued uncertainties in the external environment coupled with heightened risks do not bode well for Hong Kong’s economic situation this year. We are reviewing the GDP growth forecast and will announce our latest forecast next week. At this juncture, it appears that a downward revision is inevitable.

Effectively putting the epidemic situation under control is the most crucial support for the economic performance this year. Maintaining the stability of the domestic market is particularly important against the highly volatile external environment.

Last week the US Fed raised the interest rate by 0.5%, which is the first time in 22 years that the increase has reached 0.5%. Although remarks from US Fed officials have played down the possibility of a greater extent of rate hikes in future, the trend of rate hikes in the rest of the year remains certain with a cumulative increase reaching 2.5% or more. The US Fed has also determined the scale and pace to reduce the size of its balance sheet. These two factors together will bring a fundamental impact on the global capital supply. At the same time, the central banks of the UK and Australia have raised their interest rate by 0.25%. The global market is worrying about the intensifying geopolitical situation, the mounting inflationary pressure, the possibility of recession and the fluctuation of exchange rate. These factors have created further uncertainties to the flow of capital and asset prices. The stock markets in US and Hong Kong had been highly volatile last week.

The global market, including Hong Kong, had been enjoying a low interest rate environment for more than a decade. Low capital cost had been benefiting business operations in borrowing and lower the burden on those who need to repay mortgage. However, with the interest rate hiking cycle begun, all these conditions will be reversed. In particular, as the economy has not yet fully recovered from the epidemic, we have to pay attention to the impact of interest rate hike to people and SMEs.

As for the property market, the rise in HKD interbank rates will increase mortgage repayment expenses of property owners. Although over half of the residential properties in Hong Kong do not have mortgage loans, the recent average mortgage debt service ratio of new residential mortgage loans is at 37%, and all of them have passed the stress test of raising interest rates by 3%, reflecting that systemic risks have been managed in various aspects. Nonetheless, as the economy has yet to be fully recovered, the increase in interest rate may pressurise the mortgage repayment and daily lives burden of some property owners. Apart from interest rate, the development of the property market will also be affected by other factors such as demand and supply, the amount of capital supply and economic outlook. To SMEs, the impact of the epidemic on market’s demand and global supply chain continues, making businesses still difficult. Ongoing interest rate hikes means the pressure on their loan repayment is also gradually raising.

Thanks for the support of Members, the Appropriation Bill was approved by the Legislative Council (LegCo) last week, enabling the implementation of the countercyclical measures proposed in the 2022-23 Budget, and paving the way for post-epidemic economic recovery and long-term development. I will work with the relevant bureaux to expedite the rolling out of various initiatives under different areas in my Budget, including deepening the development of innovation and technology, accelerating the development of digital economy, and continuing to enhance the development of our traditional industries such as financial services, maritime, trade and aviation.

This Budget is the last one of this current term Government. Looking back, the preparation of the Budget every year had faced different new challenges, and we needed to address various social demands and people’s aspirations in the process. It has always been a big challenge to sort out priorities and make the best use of our finite public resources to cater for most of the different aspects, to address the needs of the majority of people while taking care of the wishes of the minority. In a deeper thought, we not only have to promote economic development to “make the cake bigger”, but also divide the cake well. Apart from looking at macro-figures such as the GDP growth, GDP per capita, inflation rate and unemployment rate, we have to pay more attention to questions such as whether people’s wellbeing are getting better in the development, whether there are improvements in jobs quality, people’s income and quality of lives. Also, we need to concern whether our industry structure could allow our young people to achieve self-actualisation and gain satisfaction in jobs which could also support their daily lives. In short, our economic development has to better benefit our people, putting people’s interests at the centre of the development. With this principle in mind, I have been actively promoting the development of our innovation and technology, sports, cultural and creative sectors, with a view to diversifying the development of our industries. At the same time, I have been promoting the development of our financial services towards inclusiveness, which includes the issuances of iBond, Silver Bond and Green Bond.

Hong Kong is stepping out from the impact of the fifth wave of epidemic and our economy is recovering gradually. Over the past few decades, even faced with different hiccups and challenges, with the staunch support of our Country and the hard work and flexibility of Hong Kong people, we have overcome the difficulties and achieved a higher standing today. Entering into a new development phase and a new chapter, by sharing the same goal and the will to progress, together we can definitely build a more fair and just and caring society with better development.

May 8, 2022

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