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The Economy
THE Hong Kong economy continued to grow rapidly in 1987. Following an increase of 11.2 per cent in 1986, the gross domestic product (GDP) rose by an estimated 13.6 per cent in real terms. The volume of domestic exports was about 23.2 per cent larger. The strong growth in domestic exports provided the main impetus to the overall economic growth, while, in line with rising incomes, domestic demand also picked up considerably.
Buoyant economic activities resulted in a very tight labour market, with the unemploy- ment rate staying at an historic low level of 1.8 per cent during most of 1987 and with a sharp rise in vacancies compared with a year ago. Earnings in all major economic sectors registered significant increases both in money terms and in real terms. In the property market, there was sustained demand for most types of property, and property prices and rentals recorded significant gains over the levels in 1986. Construction activity intensified. As regards capital investment, retained imports of capital goods grew by about 26 per cent in real terms, following an increase of six per cent in 1986.
The rate of inflation, as measured by the Consumer Price Index (A), was 5.5 per cent in 1987, whereas in 1986 it was only 2.8 per cent. Notwithstanding this acceleration, the rate of inflation in 1987 was still moderate compared with Hong Kong's experience over the past decade, when an average annual increase of 8.7 per cent in consumer prices was recorded.
There were signs that the growth rate of the economy was moderating towards the end of 1987. This slow-down in growth was probably largely a result of the develop- ment of bottlenecks in the economy following sustained strong economic performance over some 20 months, although the crash in the stock market in October might also be relevant.
Structure and Development of the Economy
Because of its limited natural resources, Hong Kong has to depend on imports for virtually all of its requirements, including food and other consumer goods, raw materials, capital goods, fuel and even water. It must, therefore, export on a sufficient scale to generate the foreign exchange earnings to pay for these imports, and the volume of exports must continue to grow if the population is to enjoy a rising standard of living.
The externally-oriented nature of the economy can be seen from the fact that in 1987 the total value of visible trade (comprising domestic exports, re-exports and imports) amounted to 210 per cent of the GDP. If the imports and exports of services are also included, this ratio becomes 216 per cent. Between 1977 and 1987, Hong Kong's domestic exports grew at an average annual rate of about 11 per cent in real terms, which was roughly twice the growth rate of world trade. As a result, Hong Kong ranks high among the world's trading economies.