A strategy aimed at stabilising the financial system, supporting enterprises and preserving employment - in the shortest possible time - has helped Hong Kong weather the global financial recession's ups and downs in the last fiscal year, Financial Secretary John Tsang says.

At the start of his Budget address in the Legislative Council today, he noted the global financial recession was the most severe since World War II, adding, "the shocks to the global economy, in terms of their severity and scale, were more profound than those experienced during the Asian financial turmoil in 1997 and 1998."

In the face of this severe financial crisis, the Government took measures to provide liquidity to banks, offer depositors a full deposit guarantee, and set up loan guarantee schemes with a guarantee commitment of $100 billion for small and medium enterprises. It also developed fiscal stimulus, job creation and relief measures amounting to $87.6 billion.

Bouncing back: The GDP, unemployment rate and CPI have all improved - suggesting Hong Kong's economic fundamentals are stronger with greater resilience to external shocks.

Amid the severe plunge in global trade, Hong Kong's goods exports fell by 12.6% in real terms in 2009 - the biggest annual drop on record. Gross domestic fixed capital formation dipped by 2.2% for the whole year.

Consumer sentiment was not seriously affected. In 2009, private consumption spending dipped by only 0.3% and actually reverted to a year-on-year increase in the latter half of the year. Business sentiment also improved, with overall investment recording double-digit growth in the fourth quarter.

"Employment is the Government's biggest concern. As the economy started to recover and our measures to preserve employment proved effective, employment conditions turned better from the middle of last year, with unemployment rate coming down to 4.9%," Mr Tsang said.

The average inflation rate for 2009 as measured by the Composite Consumer Price Index was 0.5%. Netting out the effects of the Government's one-off relief measures, the underlying inflation rate was 1%.

Mr Tsang is cautiously optimistic about Hong Kong's economic prospects for 2010.

"The global economy has not yet regained its vigour. There remain a number of uncertainties and potential pitfalls in the external environment. While the European and the US economies have returned to positive growth, their labour markets have yet to improve and their financial systems are still impaired. These economies may have undergone fundamental changes in their economic structures, and that will affect our future export performance," he said.

When the effects of the huge stimulus measures have subsided, some economies may not experience robust growth. He pointed to mounting protectionism seen among some countries, and noted the road to full economic recovery may be bumpy. However, stronger growth in the Mainland economy may help offset the fragile recovery in overseas markets.

He forecasts GDP growth of 4% to 5% for the year; and expects the employment situation to improve. Mild inflation is expected, with a forecast for the underlying inflation rate for 2010 as a whole to average 1.5% while the average rate of headline inflation will be 2.3%.

Short term, Hong Kong must adjust the exceptional measures introduced to combat the financial downturn and tackle the risk of asset-price bubbles, he stressed. In the medium to long term, it must promote sustained and steady socio-economic development.

"Governments around the world are now making plans to exit from their exceptional measures. Some have already begun to progressively execute these plans. We should also prepare to adjust our exceptional measures at a suitable time," Mr Tsang said.