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Economic situation in the third quarter of 1996
In the November update of the economic forecasts for 1996, the forecast of overall GDP growth rate in real terms for the year is maintained at 4.7%, which is closely in line with the growth rate attained last year. The forecast of consumer price inflation, as measured by the CPI(A), is lowered further, from 6.8% to 6.0%.
Overall economic conditions in Hong Kong improved further in the third quarter of 1996, from the setback in the latter part of last year and early this year.
Locally, consumer demand continued to revive, as evidenced by the steady pick-up in retail sales. Investment demand also continued to grow, albeit at a relatively less rapid rate than in the preceding two quarters, as the Airport Core Programme (ACP) had already reached its peak. Meanwhile, inventory accumulation in the local economy was lowered to a more normal level.
Externally, the growth in exports of goods so far this year was considerably slower than that attained last year. Its dampening effect on overall GDP growth was nevertheless offset by the concurrent marked slow-down in imports of goods for local use, resulting in a further narrowing of the visible trade deficit. Another pertinent factor was the on-going structural shift in the pattern of trade, which gave rise to compensating increases in both exports of services and investment income inflows. The latter is not reflected in GDP, but will be shown up in GNP.
The visible trade deficit continued to narrow. This in turn contributed positively to overall GDP growth.
The following factors should help to underpin domestic demand:
Labour market conditions have turned better, with both the unemployment and underemployment rates moving down in recent quarters, and with the growth rate of total employment picking up from last year. Better employment opportunities and sustained real increase in earnings should lend good support to consumer demand.
Consumer price inflation has moderated further. This should have enhanced real purchasing power and in turn consumer spending.
The stock and property markets are particularly bullish. Apart from the positive wealth effect this could bring to consumption, increased take-up of flats should also give rise to more purchases of household durables and greater demand for fitting out and interior decoration work.