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THE ECONOMY
THE growth rate of the Hong Kong economy slowed down further in 1989. This was brought about partly by reduced overseas demand for Hong Kong's products and partly by the economy adjusting itself to capacity constraints following several years of rapid growth.
The year-on-year growth rate of domestic exports showed a marked deceleration during the year, from an increase of four per cent in real terms in the first half to a decline of three per cent in real terms in the second half. The corresponding growth rate for 1988 as a whole was nine per cent. The year-on-year growth rate of re-exports also moderated, with increases in real terms of 29 per cent in the first half and 11 per cent in the second half. The increase for 1988 as a whole was 46 per cent. Domestic demand, including consumption and investment, was sluggish in the latter part of the year. Reflecting these developments, the gross domestic product (GDP) grew by only 2.5 per cent in real terms in 1989, compared with increases of 14 per cent in 1987 and seven per cent in 1988.
Repercussions of the events in China in mid-1989 reinforced the cyclical downturn of the economy. While certain sectors like property and tourism suffered more than others, the economy at large weathered the short-term impact well. There was little disruption in manufacturing and trading activities, including outward processing arrangements across the border.
As the economy was still operating close to capacity, the labour market remained generally tight. The seasonally-adjusted unemployment rate and the underemployment rate stayed at a low level throughout the year, moving between 1.3 and 1.4 per cent and 0.6 and 0.8 per cent respectively. The employment situation varied between major sectors. While employment in the manufacturing sector declined, employment in the service sectors generally increased.
Labour incomes were boosted by the sustained demand for labour. Earnings in the manufacturing sector and in most service sectors increased significantly, both in money terms and in real terms. However, as economic activity continued to slow down, the pressure of demand for labour tended to ease. The number of vacancies in most sectors, such as manufacturing, building and construction, wholesale/retail and import/export trades, and restaurants and hotels, declined in the latter part of 1989 compared with a year earlier.
The Consumer Price Index (A), as one of the major indicators of inflation, averaged 10.1 per cent higher in 1989 compared with a year earlier. The corresponding rate of increase in this Index was 5.5 per cent in 1987 and 7.5 per cent in 1988. However, the rate of inflation had shown a tendency to ease towards the end of the year, in line with the moderation in economic growth.
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