(Adds the impact on the economy from the fiscal package in second paragraph.)
Feb. 1 (Bloomberg) -- Hong Kong will spend nearly HK$80 billion ($10.3 billion) to bolster growth as the government forecasts the weakest expansion since 2009 on a “bleak” outlook for the U.S. and Europe.
Gross domestic product may rise between 1 percent and 3 percent this year, down from an expansion of 5 percent in 2011, Financial Secretary John Tsang said today in his budget speech. The measures, which include tax benefits, will boost GDP by 1.5 percentage points in 2012, he said.
Tsang, delivering his last budget, said “the risk of a sharp deterioration of the external environment is increasing.” Property prices in the city, the world’s most expensive place to own a home, have slid 6 percent since June, and banks and brokerages including HSBC Holdings Plc and Samsung Securities Co. are trimming staff.
“The budget measures should help to buffer local household spending from the impact of slower global growth, as the European crisis threatens to spill over to affect business sentiment in the U.S. and Asia,” said Donna Kwok, an economist at HSBC Holdings Plc in Hong Kong. “Policy makers across Asia will come under increasing pressure to loosen the fiscal spigots or monetary conditions to support growth.”
The benchmark Hang Seng Index fell 0.3 percent today.
The economy grew 0.3 percent in the fourth quarter from the previous three months, according to the government. On a yearly basis, the expansion was 3 percent, less than the 3.1 percent median forecast in a Bloomberg News survey of 12 economists.
Hong Kong Chief Executive Donald Tsang said last week in Davos, Switzerland, that he has never been as scared about the global economic outlook.
“I am not optimistic about Hong Kong’s export performance in the first half of this year,” John Tsang said today. “If exports of goods were to plunge in the first quarter, the overall economy might take a downturn in that quarter.”
Unemployment may climb this year, the financial secretary said. DBS Bank Hong Kong Ltd. expects the jobless rate to reach 4.4 percent by year’s end, up from 3.3 percent in the fourth quarter of 2011.
Inflation may slow to 3.5 percent this year, compared to 5.3 percent in 2011, Tsang said. Hong Kong will issue as much as HK$10 billion of three-year inflation-linked bonds, after its first sale last July, to help residents cope with rising prices, he said.
Tsang was last year forced to give a cash handout of HK$6,000 for each permanent resident after his original budget proposal drew criticism from lawmakers and led to street protests seeking more aid for workers. With “huge” financial reserves, the government needs to do more to tackle the “structural issue” of poverty, Wong Hung, a professor in social work at the Chinese University of Hong Kong, said before today’s budget.
Today, the financial secretary said that workers’ first HK$120,000 of pay each year will be tax-free, up from HK$108,000. The government will give tax rebates capped at a maximum of HK$12,000 per company or individual.
The city’s fiscal strength is giving Tsang room to boost spending. The government expects a HK$66.7 billion budget surplus for the year ending March 2012, Tsang said today, after forecasting an HK$8.5 billion deficit in March last year. That may boost fiscal reserves to a record HK$662 billion, or 22 months of government spending, he said.
“This budget aims to heap some sandbags for the city to deal with external uncertainties,” Tsang said at a press briefing today. The financial secretary said he saw “bleak economic prospects” for the U.S. and Europe.
Like China, Hong Kong has a property market that is cooling because of government curbs, with Barclays Capital predicting prices may decline as much as 25 percent by 2013.
The Hang Seng Property Index, which tracks the city’s seven biggest developers including Sun Hung Kai Properties Ltd. and billionaire Li Ka-shing’s Cheung Kong Holdings Ltd., fell 24 percent in 2011, after gaining more than 75 percent over the previous two years.
Ahead of today’s data, UBS AG said it saw Hong Kong’s economy expanding 1.6 percent this year, with the possibility of a “shallow” recession in the first half, while Standard Chartered Plc predicted growth of 2.9 percent.
--With assistance from Fion Li, Marco Lui and Michael Munoz in Hong Kong. Editors: Hwee Ann Tan, Paul Panckhurst
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