Mr. Heave Mr Herm
Gaz
Mr Williams (HKD, WH312)
3/1/2
BASTECE 11 09014
RECEIVED IN REG STAY
3- JAN 1984
OFFICER
HONG KONG: THIRD QUARTER ECONOMIC REPORT
989E
PA
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انت
1..
The trends identified in the last two quarters Economic Reports continue: in particular the recovery of exports, and the weakness of physical investment in the Territory.
The External Sector
2.
Domestic export growth is impressive. Volume was 19% higher than the third quarter of 1982 (year-on-year increases for the first and second quarters of 1983 were 3% and 14% respectively). A very rapid increase in exports to the USA is the most important factor. From a rather low level, the volume of domestic exports to the PRC has shown remarkable growth in the last six months for which figures are available over 50% on an annual basis.
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3. Figures for retained imports suggest confidence in sustained export recovery, with the volume of raw materials and semi-manufactures imported 30% higher than a year earlier. However, imports of capital goods retained in the Territory were 13% lower in volume terms than a year before. Confidence in the medium-term, in setting up new equipment and operations with a pay-back period extending beyond the current export boom, is apparently still lacking.
The Financial Sector
4. Growth in the widest measure of the money stock, M3, of 9.9% during Q3 1983 was again dominated by the foreign currency denominated component which grew by 18.6%. (The HK$ element grew by only 2.3%.) A large part of the increase in the HK$ value of foreign currency deposits was due to the depreciation of the HK$; its value fell by about 12% against the US$ during this period.
5.
As a result of the drastic slide in the HK$ value during September, domestic interest rates were progressively raised from a best lending rate level of 11.5% on July 25. By the end of September, BLR had reached 16%. It has fallen somewhat with the success of the new exchange system introduced in mid-October, BLR standing at 13.5% at present. (The increases in rates to borrowers over this period has obviously made matters worse for hard-pressed property companies, and may have had some effect on plans to invest in manufacturing.)
Unemployment
6. The employment position has continued to improve. The unemployment rate was 3.8% in Q3, having stood at 5.1% during Q1. Increases in employment in manufacturing and distribution have offset falls in construction and finance-related service industries.
Prices
7. The annual rate of inflation of consumer prices has remained fairly stable at around 9% during Q3, though it is noted that the weakness of the HK$, and the consequent rise in import prices in domestic currency terms, will lead to a future acceleration in inflation.
CODE 18-77
/Comment