Hong Kong Budget: 2013 will be a challenging year

Government pegs GDP at 1.5% - 3.5%.

Financial Secretary John Tsang said in his 2013-2014 Hong Kong budget speech that 2013 will see a set of challenges from the macro perspective of the world's economy. He stressed that continued modest growth is expected amid downside risks.

Here's an excerpt from his speech:

While the US has made some progress in tackling its fiscal problems, the pace of its economic recovery remains slow. Though the European debt crisis has temporarily stabilised, the economies there have already plunged into recession.

Japan is beset by high debts, and it is difficult to tell whether the Japanese government's stimulus measures will help renew economic growth.

Taking a macro perspective of the world's economy, continued modest growth is expected amid downside risks. The quantitative easing programmes launched by the advanced economies facing a prolonged economic downturn will lead to fluctuations in the markets, ultra-abundant liquidity with unpredictable fund flows, and potentially give rise to stronger protectionist sentiments.

This, combined with various geopolitical factors, will cast a negative outlook for global trade.

The intricate external environment will remain unstable in the year ahead. The whole world will have to face wars on three fronts, namely "currency", "trade" and "geopolitics". As a highly open and small economy, Hong Kong will be impacted by the development of these wars to a certain extent.

Fundamentals in Asia remain strong and the Mainland economy regained its growth momentum in the fourth quarter of last year. Barring an abrupt deterioration in the demand from the advanced economies, Hong Kong's external trade should see some improvement.

On the domestic front, buoyed by the largely stable labour market, local consumption is expected to sustain modest growth. The pick-up in construction works and vibrant inbound tourism will remain the driving force of domestic demand this year.

I expect a modest improvement in our economy this year and forecast Gross Domestic Product (GDP) growth of 1.5 to 3.5 per cent for the year. This growth rate is still lower than the average over the past decade and there may be some upward pressure on the unemployment rate.