US recovery role not replaced by emerging Asia economies yet: FS

HONG KONG: Financial Secretary John Tsang has warned that the economic outlook for Hong Kong for 2010 is still subject to uncertainties, as the pace of global economic recovery remains unclear.

In a response to a lawmaker's question in the Legislative Council yesterday, Tsang also said the government will consider the latest economic situation in formulating the next budget.

"As the current global economic recovery has yet to be on a firm footing, especially with the advanced economies still facing considerable downside risks, Hong Kong's recovery process could still be rather bumpy going forward," he said.

Tsang noted that the situation in the US is of particular concern to the SAR government, as the emerging economies in Asia have yet to replace the US in leading the global economic recovery.

"As for the present, the foundation of economic recovery in the US is still rather weak; the economic rebound remains mostly driven by various fiscal and monetary stimulus measures from the public sector," Tsang said.

Tsang added that the growth momentum within the private sector is not yet sufficient, while he doubts whether the US economy can sustain its growth after the withdrawal of the stimulus measures.

He also cited Nobel Prize-winning economist Paul Krugman's estimate that the US has as much as a 40 percent chance of falling back into recession in 2010, after the end of the stimulus measures.

The International Monetary Fund, meanwhile, holds a similar view - that the global economic recovery will be weak, and that there are downside risks to the global economic outlook.

Irina Fan, a senior economist at Hang Seng Bank, said the major risk to a smooth recovery is whether excess liquidity can be mopped up at the right time and at an appropriate speed.

"Although major central banks have hinted at gradual withdrawal of monetary stimulus, many policy makers in the region, including those in Singapore, Korea, the mainland and Hong Kong, have voiced concerns about the risk of excess liquidity fueling asset bubbles," Fan said.

Despite the economic uncertainties in 2010, the Financial Secretary said that the government will continue to monitor the economic situation and, if necessary, introduce measures to ensure that the economic recovery is on solid ground.

"We are also mindful that an appropriate exit strategy is very important, as this will ensure sustainable economic growth," Tsang added.

To help the local economy emerge from a yearlong recession in the second quarter of 2009, the government introduced a series of measures to stabilize the financial markets, ease credit conditions, support enterprises, accelerate public works and create employment.

On the fiscal side, several rounds of relief measures with a total amount of HK$87.6 billion, or 5.2 percent of GDP, has also been allocated to the city's residents.

Chief Executive Donald Tsang said last month that Hong Kong may face a double-dip recession in the middle of 2010, as the city's economic recovery process "may not be that smooth all the way".

But he also said Hong Kong is fiscally strong enough to withstand any possible double-dip in the economy.

(HK Edition 01/14/2010 page4)