Table 1
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2 -
(% changes)
1987
1988
Private consumption
10.8
6.5
Government consumption
4.7
5.6
Gross fixed capital formation
15.2
4.0
of which: construction
6.6
3.8
plant & machinery
27.3
3.9
Total exports
33
8.8
Imports
31.7
9.5
Net export of services
29.4
10.0
TOTAL
13.6
5.0
6.
While I have not yet seen the full details of the forecast, the
main assumptions are fairly clear. These include:
i. some slowdown in demand for exports, due to a dampening in
demand from the crucial US market;
ii.
with the economy continuing at capacity, domestic demand increases will be met by imports;
iii. a rapid slowdown in the rate of capital formation.
7. In qualitative terms all of these may be justifiable. But the extent of the slowdown seems extreme. While caution, especially for a Budget framework, is desirable, this overall scenario might not be given a great deal of credence.
8. On the demand side, even if demand from the US falters, a dramatic slowdown is not a necessary consequence of the uncertainty after the Stock Market declines and the importance of the US is readily apparent, a dramatic slowdown is not a necessary consequence. HK received a further competitive boost in other export markets when the dollar fell towards the end of last year; thus rapid growth in demand for exports to Europe and Japan could continue. The recent GATT forecast projected world trade to increase by the same rate as in 1987. There are further gains to be made vis-a-vis the other NICs as their exchange rates appreciate
relative to the HK$.
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