THE ECONOMY
The market for industrial property continued to be sluggish, affected by the on- going relocation of production processes and the general downturn in the property market. Prices and rentals for industrial property on average fell by 29 per cent and 17 per cent respectively during 1998.
Planned developments of all types of property declined considerably in 1998. Yet there was a more modest decline in the third quarter, and then a rebound to an increase in the fourth quarter, mainly on account of a pick-up in consents for residential property.
Inflation
Consumer price inflation eased distinctly over the course of 1998. To a large extent, this reflected the expeditious adjustment in the economy upon the impact of regional financial turmoil. Towards the end of the year, domestically generated inflation had virtually dissipated, upon the large fall in rentals, softening in wages and salaries, and the prevalence of price discounts amid the weak consumer demand. The freeze in government fees and in several public utility charges during the year, as well as the rates rebate effective in the fourth quarter, also contributed. At the same time, imported inflation was subdued, as the prices of retained imports were held down by the relative strength of the US dollar for most of the year, the significant decline in world commodity prices, and sustained low inflation in the major supplier economies. On a year-on-year comparison, the increase in the Composite Consumer Price Index moderated from 5.0 per cent in the first quarter of 1998 to 4.4 per cent in the second quarter and further to 2.8 per cent in the third quarter. The Composite CPI then receded to a 0.8 per cent decline in the fourth quarter. The rates rebate brought down the Composite CPI in that quarter by around 1.4 percentage points. For 1998 as a whole, the Composite CPI rose by 2.8 per cent, markedly down from the 5.8 per cent increase in 1997. On an annual basis, this was the lowest figure ever recorded since the Composite CPI series was compiled as from October 1981.
The three sub-indices, i.e. the CPI(A), CPI(B) and Hang Seng CPI, likewise exhibited a distinct easing trend. By the fourth quarter of 1998, they all registered declines when compared with a year earlier. For 1998 as a whole, the CPI(A) rose by an average of 2.6 per cent, the CPI(B) by 2.8 per cent, and the Hang Seng CPI by 3.2 per cent, all markedly slower than the corresponding increases of 5.7 per cent, 5.8 per cent and 6.1 per cent in 1997.
The GDP deflator, as a broad measure of overall inflation in the economy, likewise moderated significantly, with a meagre 1.1 per cent rise in 1998, down from a 7.2 per cent increase in 1997. While easing in prices was seen in most of the GDP components, the declines were most prominent in transaction costs of land and buildings and in costs attributable to services rendered by developers. Also appreciable were the declines in prices of exports of goods and services, amid keener competition in the overseas markets and weak regional demand.
Economic Policy and Public finance
Economic Policy
Under the 'One Country, Two Systems' principle, the HKSAR shall continue to adopt social, economic and political systems distinct from those in the Mainland
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