5 THE ECONOMY
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HONG KONG'S economy picked up steadily during 1996, after a temporary setback towards the latter part of 1995. For 1996 as a whole, the Gross Domestic Product (GDP) grew by 4.7 per cent in real terms, the same as the growth rate attained in 1995. Exports of goods registered a considerably slower growth in 1996. There was, however, a concurrent marked slow-down in imports of goods for local use, resulting in a further narrowing of the visible trade deficit. This, together with a large and growing surplus in invisible trade, has contributed positively to the growth of GDP in 1996. Conditions in the labour market improved with the unemployment rate edging lower.
Earnings in most major sectors continued to show notable increases both in money terms and in real terms. The property market revived in 1996 after the consolidation in 1995. Consumer price inflation moderated markedly.
Like many economies in the region, Hong Kong suffered a setback in export growth in 1996, affected to various extent by the slow-down in import demand in some of the major markets and the abrupt global downturn in the electronic product cycle. Compounding the adverse demand effect was the relative strength of the Hong Kong dollar in line with the US dollar, which reduced the competitiveness of Hong Kong's exports in the world market. The North American Free Trade Agreement (NAFTA) could have also diverted to Mexico and Canada some US import demand formerly sourced from Asia.
Nevertheless, the growth in imports also decelerated significantly, contributed partly by the deceleration in re-export growth and partly by inventory adjustment leading to a decline in retained imports. As a result, the visible trade deficit narrowed to $138 billion, or 9 per cent of the value of imports in 1996, from $147 billion, or 9.9 per cent of the import value in 1995.
Exports of services continued to grow strongly in 1996, albeit less rapidly than in 1995. Apart from the strong growth in tourism, offshore trading and exports of professional and business services increased further. The surplus in invisible trade should be able to offset substantially the deficit in visible trade.
On domestic demand, consumer spending revived steadily. Of particular note was the resurrected buying interest in luxurious or durable items such as cars and home appliances in the latter part of 1996. Overall investment spending was generally sustained. Activities related to the major infrastructural projects, particularly those under the Airport Core Programme (ACP), remained intensive. However, growth should have tapered as the ACP progressed towards its peak.