THE ECONOMY
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Local manufacturing output, as measured by the index of industrial production, decreased by two per cent in the first three quarters of 1990 from the same period in 1989. This compared with an increase of one per cent in 1989 over 1988. The rate of decline in manufacturing output was smaller than in manufacturing employment. Thus there was still an improvement in labour productivity in the manufacturing sector. This was attributable partly to the marked increase in investment in plant and machinery over the past few years, and partly to relocation of the more labour-intensive production processes to China.
The generally tight conditions in the labour market boosted labour incomes. Com- paring September 1990 with September 1989, earnings in the manufacturing sector and in most of the service sectors, in terms of payroll per person engaged, showed further in- creases both in money terms and in real terms. Among the various sectors, earnings in the wholesale, retail and import/export trades rose by 21 per cent in money terms or 11 per cent in real terms; those in finance, insurance, real estate and business services, in the manufacturing sector, and in transport, storage and communications by 13 per cent in money terms or three per cent in real terms, and those in restaurants and hotels by 12 per cent in money terms or two per cent in real terms. In the building and construction sector, wage rates continued to increase significantly in 1990, albeit at a less rapid rate than in 1989. The increase averaged about 16 per cent in money terms, or six per cent in real terms, over a year earlier.
The Property Market
Having revived considerably since late July 1989, the property market showed some consolidation in the first half of 1990 before picking up again in the second half. Performance of the various sub-sectors was mixed, however. There was a strong underlying demand for small to medium-sized residential flats. Response to the pre-completion sales of flats in this size range was generally favourable. As a result, prices and rentals for these increased significantly during 1990. Demand for large flats was generally moderate, but in some areas it picked up in the latter part of the year. Demand for shopping space held up well in 1990, with prices and rentals in the more popular locations showing some increases. As regards office space, there was a downward adjustment in prices and rentals, largely due to an abundant supply from new developments. This adjustment was larger for office accommodation in secondary locations. The market for industrial premises was relatively quiet during the year, in line with the slow-down in manufacturing production, and prices and rentals remained generally soft.
Response to the various government land auctions conducted in 1990 was generally in line with market expectations. Developers appeared to be more cautious about investing in industrial sites, but were still optimistic in regard to residential sites.
Inflation
The rate of consumer price inflation, as measured by the Consumer Price Index (A), rose by an average of 9.8 per cent in 1990. This compared with an increase of 10.1 per cent in 1989. Most of the inflationary pressures were domestically generated, as evidenced among other things by the significant increases in wages and salaries during the year. There were some easing in the inflation rate up to the second quarter of the year, in line with the slow economic growth, but the oil price hike since August and pick-up in economic activity gave rise to additional inflationary pressures. As a result, the inflation rate edged up again towards end-1990.