HK Budget 2011: Rising Inflation Clouds Economic Outlook

Hong Kong — The economy still faces a number of challenges in 2011, said Financial Secretary John Tsang Chun-wah in his budget speech on Wednesday.

Contributing to the challenges are increased risks of inflation and asset-price bubbles in Asia, the lingering effects of the sovereign debt crisis in the Eurozone, and uncertainties on the European and the US economies. In addition, deleveraging and high unemployment are also expected to have an impact, Tsang said.

Although Hong Kong will continue to benefit from the relatively stronger growth in mainland Chinese and Asian economies, Tsang said, the relatively fragile economic recovery of the US and Europe will pose a test to the export performance of Asia and Hong Kong. Even so, Hong Kong’s GDP is still expected to grow a real 4% to 5% this year.

Hong Kong’s economy shook off the global downturn to grow 6.8% last year following a 2.7% contraction in 2009.

Tsang said Asia is facing mounting challenges from rising inflation, forecasting that the headline and underlying inflation rates for 2011 as a whole will average 4.5%.

Factors pushing inflation include the soft US dollar and possible increases in global food and commodity prices. He added that the continued rise in the mainland’s food prices and local rentals are expected to have a more noticeable effect on Hong Kong’s inflation this year.