3 biggest things to watch out for in Hong Kong Budget 2014

Relief measures likely to be downsized.

According to BofAML, on 26 February, Financial Secretary John Tsang is scheduled to announce 1) the government’s latest estimate on FY2013/2014 fiscal results; 2) the FY2014/2015 fiscal budget (April 2014 to March 2015); and 4Q13 GDP figures.

Here's more:

1. Positive FY2013/2014 fiscal performance likely

The fiscal outcome for FY2013/2014 looks set to surprise on the upside again. Revelations last month that the government totaled a fiscal surplus of HK$31.4bn in the first nine months of FY2013/2014 prompted us to forecast the current year’s fiscal surplus at a robust HK$52bn (2.5% of GDP).

This is contrary to the government’s previous expectation of a HK$4.9bn deficit. The surplus would raise Hong Kong’s fiscal reserves to HK$786bn (37.3% of GDP, or roughly 25 months of government expenditure).

2. Relief measures will likely be downsized

We believe the principle of spending prudently will be followed in FY2014/2015, and the newly announced fiscal policy to be extremely conservative.

Relief measures, including the waiver of property rates and public housing rents, as well as a tax rebate, will likely still be unveiled in the current administration’s second fiscal budget. However, they will be much smaller in scale than last year, given the improving global outlook and the government’s concern about shrinking fiscal resources and the rising financial burden.

Also, hopes of cash handouts are likely to be dashed, as Leung Chun-ying reiterated his focus on spending public money on people who needed it, rather than the population as a whole.

3. 4Q13 GDP to be announced with the budget

We forecast a 3.0% yoy increase, slightly better than the 2.9% in 3Q13, as exports recovered slowly while the domestic economy benefited from the recent uptick in stock market sentiment and capital spending.