Chapter 3
The Economy
Hong Kong's economy remained vibrant in 2007, marking the fourth consecutive year of strong growth. The economy was resilient to the turbulence in the global financial markets. While conditions in the local labour market improved significantly and thus benefited workers at different skill levels, inflationary pressures also increased amid the strong economic upturn and global food and energy inflation.
Hong Kong's economy showed another year of vibrant performance in 2007. The Gross Domestic Product (GDP) jumped by 6.4 per cent in real terms, following the 7.0 per cent growth in 2006. On a year-on-year comparison, economic growth was above trend throughout the four quarters of 2007, picking up from 5.5 per cent in the first quarter to 6.2 per cent in the second quarter and 6.8 per cent in the third quarter, and further to 6.9 per cent in the fourth quarter. The strengthening domestic demand helped to sustain GDP growth at a stronger pace in the latter part of the year. The financial services sector continued to outperform other major sectors as the economy strove to enhance its role as an international financial centre. On a seasonally adjusted quarter-to-quarter comparison, GDP expanded strongly during the year, by 1.7 per cent, 1.5 per cent, 2.1 per cent and 1.5 per cent respectively in the four quarters.
The external sector on the whole continued to display strength in 2007. Merchandise exports showed a notable growth, but expanded at a slightly slower pace in the second half of the year. The United States and Japan markets were weak, but the robust growth in the Mainland and many other emerging Asian markets took up the slack. On the other hand, the Hong Kong dollar, which has weakened because of its link to its US counterpart, was also supportive to the competitiveness of Hong Kong's exports. The service trade continued to be a bright spot in the economy, buoyed by the hectic activity in the financial market, vibrant inbound tourism (especially in the second half of the year) and continuing demand for merchanting and other trade-related services mainly connected to offshore trade. Exports of transportation services also rose at a solid pace. The persistently strong demand for Hong Kong's services underlines the city's prowess as a regional hub for business, financial, trade and travel services.
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40 The Economy