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February 23, 2017

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HK delivers generous budget, sees better 2017

HONG Kong handed out billions of dollars in tax cuts and poverty relief yesterday to reflate its economy, and projected a brighter outlook this year amid growing concerns over rising trade protectionism and higher interest rates.

The city government bumped up its economic forecast for 2017 by a full percentage point to 2-3 percent and said the economy grew at 1.9 percent last year, faster than expected by economists.

Its trade-reliant economy is carrying more momentum in the new year due to a pickup in exports and private consumption, and a more stable Chinese mainland economy, helping boost annual growth to 3.1 percent in the final quarter of 2016 — the city’s fastest since the June quarter of 2015.

“The property market was much better in the December quarter and that filtered into the pickup in private consumption but I don’t see that momentum sustaining due to rising US interest rates,” said Kevin Lai, chief economist for Asia excluding Japan at Daiwa Capital Markets.

The Hong Kong dollar is pegged to the greenback and expectations of two to three US interest rate hikes this year will trigger increases in local mortgage rates.

Financial Secretary Paul Chan said in his maiden budget address that an improved labor market and construction projects worth nearly HK$87 billion (US$11.2 billion) this year, had also bolstered consumer confidence that would feed into the local economy.

He warned, however, that the city’s astronomical property prices continued to be an issue.

“The uncertain external environment and interest rate trend may trigger abrupt shifts in capital flows and heighten volatility in local asset prices, with repercussions on consumption and investment sentiments and on macro-economic stability,” Chan told lawmakers.

On the property market, which Chan called exuberant and “out of tune with the local economy” despite a raft of cooling measures, he said the government would “substantially” increase residential flat supply in the next few years.

The package of one-off economic handouts and stimulus measures include reducing salaries tax and profits tax up to a ceiling of HK$20,000 per individual or firm, that would cost the government some HK$18.3 billion, as well as extra social welfare handouts for the elderly and disabled.


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