CONFIDENTIAL
of a number of large capital works projects including the major part of the Island Line of the Mass Transit Railway. Investment in plant and machinery also showed signs of slowing down, following
substantial growth in 1984.
32.
Despite the fall in domestic
stable.
1985
underemployment figures remained
to August, the unemployment rate wa s
exports,
unemployment
and
In the three months June
3.3% and the underemployment
provided
rate was 1.4%. The labour force effectively was fully employed.
Continued expansion of the entrepot trade and of the financial and
related
additional employment opportunities. Both earnings and private consumption expenditure showed moderate growth.
services
sectors
the third
This was
33. The rate of inflation stayed low. By the end of quarter of 1985 the annual rate had dropped to about 3%.
due in part to the stability of the Hong Kong dollar during its
second year under the linked exchange rate system. Although there were occasions when the link with the US dollar at HK $7.80 came
under pressure, the system held up well; it was instrumental in
stabilising the exchange rate and restoring confidence in the Hong Kong dollar. There are no plans to alter the link.
34.
Buoyant revenue from an economy continuing to make steady progress and continued stringent control of public expenditure we re
expected to result in a smaller deficit for the 1985-86 financial year than had been originally forecast. The return to a balanced budget in 1986-87 thus became a realistic expectation. Despite some
grey areas, the period under review saw Hong Kong return to
"business as usual".
35.
Looking ahead, Hong Kong's economy will continue to remain highly dependent on trade and manufacturing. Clearly, important factors will be consume r demand in Hong Kong's export markets and
the willingness of other Governments to allow consumer s freedom of
choice. If the Thurmond/ Jenkins Bill in the United States should
be passed into law, Hong Kong's trade would be adversely affected. Otherwise, Hong Kong's economy is expected to hold up well. In the
financial sector over the next 12 months the Government intends to
11
CONFIDENTIAL