cent in real terms, in the first ten months of 1986, over the same period last year, in contrast with a decline of 5 per cent in 1985 as a whole. This recovery was attributable partly to improved demand for Hong Kong's products in many of its major overseas markets, and partly to improved external competitiveness caused by the depreciation of the Hong Kong dollar against most major currencies, in line with the depreciation of the US dollar under the linked exchanged rate system. For the first ten months of 1986 re-exports grew by 10 per cent in real terms.
43. The strong recovery in domestic exports has helped to maintain employ- ment at a high level and to boost labour incomes. In the period September- November 1986, the seasonally-adjusted unemployment rate was 2.4 per cent and the underemployment rate was 1.2 per cent. Employment continued to grow particularly in the financial and other business services sectors and in the distributive trades. Earnings in most sectors increased significantly both in money terms and in real terms.
44. In line with the improved economic conditions, private consumption demand has also firmed up, as reflected by the relatively high growth rates of retained imports of consumer goods and of foodstuffs, at 11 per cent and 10 per cent respectively in real terms in the first ten months of 1986.
45. Except for one or two temporary aberrations the exchange rate of the Hong Kong dollar against the US dollar has remained stable around the linked rate of HK$7.80 to US$1 during the year. However, reflecting the depreciation of the US dollar, the effective exchange rate index of the Hong Kong dollar fell from 70.6 in end-December 1985 to 64.8 in end-December 1986.
46. Despite the depreciation of the Hong Kong dollar, the rate of inflation has remained low, consumer prices increased by an average of 2.7 per cent in the first eleven months of 1986 over the same period last year.
47. As a result of the improved economic performance in recent months the forecast growth rate of the gross domestic product (GDP) for 1986 was revised upward from 4.5 per cent at the time when the budget for the 1986-87 financial year was announced to 5.6 per cent in mid-September, and even this revised forecast may prove to be conservative. In contrast, in 1985, the estimated growth rate of the GDP was 0.8 per cent.
(b) Investment
48. Capital investment in Hong Kong is mainly undertaken by the private sector. The role of the Hong Kong Government is largely confined to ensuring the provision of the necessary infrastructure, and the preservation of a favourable investment environment within which private business enterprises can seek to maximize their returns. In addition to providing much of the physical infrastructure, the Hong Kong Government seeks to ensure that adequate support is provided to investors in the availability of new industrial technology and of a well-trained and well-educated workforce.
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