Tsang maintains pattern of conservative growth forecasts

The latest Hong Kong budget growth forecast looks “conservative” or even “pessimistic” to some analysts, who say the government may be seeking to manage expectations while expecting economic growth to outstrip official predictions.

Financial Secretary John Tsang Chun-wah said on Wednesday that he expected gross domestic product (GDP) to rise by between 1.5 per cent and 3.5 per cent in 2013. Tsang also forecast a surplus of about HK$64.9 billion for the current year.

The GDP forecast included the expected effect of a range of stimulus measures aimed to help the economy along for the next year, but George Leung Siu-kay, HSBC’s adviser for Asia-Pacific strategy and economics, said the government appeared “to be quite pessimistic about the economic prospects for 2013”.

In his budget response, Leung said the growth forecast was “at the low end” of market forecasts, which should provide the government with more room to manoeuvre, and it also stood to benefit if GDP growth was much higher.

A Reuters poll of eight banks produced a consensus forecast that Hong Kong’s GDP this year would grow 3.1 per cent, up from GDP growth of 1.4 per cent in 2012, its slowest rate since 2009.

Kelvin Lau, senior economist with Standard Chartered, said the government’s forecasts beyond this year assumed an annual average growth rate of four per cent in real terms for the four-year period between 2014 and 2017.

“This, together with an (assumed) underlying inflation rate average of 3.5 per cent ... appears reasonable, if not slightly on the conservative side in view of China’s continued rise and urbanisation likely to positively spill over across the border,” Lau wrote, adding that Standard Chartered is forecasting 3.4 per cent GDP growth this year.

Alice Leung, a tax principal with KPMG China, said the government’s forecast deficit of HK$4.9 billion looked “questionable” in light of the growth forecasts “plus the government’s track record in fiscal projection”, referring to the government’s tendency to take a conservative approach.

She said the government’s original budget estimate for the current financial year was “huge (moving) from a deficit of HK$3.5 billion to a surplus of HK$64.9 billion”.

In the latest budget, Tsang revised the estimate for government revenue to HK$445.5 billion, up by HK$55.2 billion from the original estimate.

Tsang said the increased estimate reflected higher-than-expected revenue from land sales and profits tax. He produced an expenditure estimate of HK$380.6 billion, down 3 per cent or HK$13.1 billion from the government’s original estimate.

Additional information from Reuters.