The Economy || 53
Boosted by the surge in exports of services, the combined visible and invisible. trade balance continued to record sizable surplus of $172.1 billion in 2006, equivalent to 6.0 per cent of the total value of imports of goods and services, compared to $172.2 billion and 6.7 per cent in 2005. The sizeable surplus underscored the Hong Kong's strong external competitiveness on the one hand, and the city's increased resilience to volatilities and external shocks on the other.
Domestic demand
Compared to trade, business on the domestic front was steadier, but an equally important contributor to Hong Kong's economic growth in 2006. Local consumption showed solid growth throughout the year, the labour market continued to perk up on a broad front, and the asset markets performed. Together, these factors presented a bullish economic picture. Reduced uncertainty over interest rates in the latter part of the year also boosted consumer confidence. Private consumption expenditure grew by 5.2 per cent in real terms in 2006, a remarkable jump from the 3.3 per cent of the previous year.
Overall investment grew for the fourth year in a row, highlighted by a 7.9 per cent growth in 2006, the fastest in six years. This was due mainly to a sustained surge in machinery and equipment acquisition, a clear reflection of investor confidence in the economy. However, the construction industry as a whole was lacklustre. After a short-lived rebound in the second quarter, private sector building and construction activity slowed again and recorded a moderate decline in the latter half of the year. Public sector building and construction activity was also slack, due to a fall-off in public housing works and a lack of large-scale infrastructure projects (Chart 9).
Chart 9
Main components of domestic demand (year-on-year rate of change in real terms)
Per cent
15
10
5
-5
-10
-15
Private consumption expenditure
Investment expenditure in terms of gross domestic fixed capital formation
Government consumption expenditure
-20
1996 1997 1998 1999
2000 2001 2002 2003 2004 2005 2006
Domestic demand played an increasingly vital role as both consumer and investor confidence held up well on the back of improving fundamentals.