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The Economy
Total exports of goods grew slightly in 2016, reversing a modest decline in 2015. The external trading environment was particularly difficult early in the year but staged some improvement subsequently, led by stronger economic growth in the United States and steady growth in the Mainland economy. The United Kingdom's vote in June to leave the European Union caught the markets by surprise, but the contagion impact remained largely contained till end-2016. Along with a general recuperation of Asia's trade flows, Hong Kong's total exports of goods revived after falling in the first quarter, with a particularly impressive growth in the fourth quarter.
Exports of services slackened, dragged down mainly by a notable fall in inbound tourism. As the global economic environment turned more benign and visitor arrivals bottomed out, exports of services generally improved during the year, reverting to growth in the fourth quarter.
The domestic sector stayed resilient despite the various external uncertainties. Private consumption expenditure registered further growth, buttressed by continued favourable employment and labour income conditions. Investment expenditure rose again in the second half of 2016 on the back of the improved business sentiment and sustained expansion of building and construction activity, though it still registered a slight decline for the whole year.
The labour market was in a state of full employment throughout the year, notwithstanding the slowdown in inbound tourism and weakness in retail sales. Total employment for 2016 as a whole rose to a new annual high. The seasonally adjusted unemployment rate edged down to 3.3 per cent in the fourth quarter. Against this background, wages and earnings attained another year of real improvements.
Following a brief consolidation in late 2015 and early 2016, the residential property market rebounded in the second quarter of 2016 and turned exuberant in the third quarter amid a still tight demand-supply situation. Yet the market cooled visibly after the government introduced a new demand-side management measure in early November and the US raised interest rates in December, with trading activities turning very quiet and the upward momentum in flat prices moderating noticeably. Overall flat prices rose 8 per cent during the full year of 2016.
The local stock market remained volatile. Local stock prices came under pressure at the beginning of the year, but rallied during the second and third quarters, supported by such developments as the smaller-than-expected contagion effect of Brexit, delays in US interest rate hikes and the approval of the Shenzhen-Hong Kong Stock Connect implementation plan. Towards the year end, the Hang Seng Index (HSI) again consolidated, finishing 2016 almost flat from a year earlier amid renewed market wariness over imminent US interest rate hikes.
Inflation eased slightly further in 2016, thanks to generally soft domestic and external price pressures. The underlying inflation rate edged down to 2.3 per cent in 2016 from 2.5 per cent in 2015, marking the fifth consecutive year of easing.
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