The external sector
In the third quarter of 1996, total exports grew steadily, by about 5% in real terms over a year earlier, following increases of 5% and 4% in the first and second quarters. For the first nine months of 1996 taken together, the growth rate in real terms was about 5%, considerably slower than the 12% increase for 1995 as a whole. Within this total, re-export growth decelerated markedly to about 7% in real terms in the first nine months of 1996, against a 14% increase in 1995. Domestic exports fell by about 9% in real terms over the same period, in contrast to a 2% increase in 1995.
A number of factors had weakened export performance so far this year. These included the relative strength of the Hong Kong dollar in line with the US dollar, slow- down in import demand in the United States and China, tension across the Taiwan Strait early in the year, and the China-US dispute over protection of intellectual property rights under Special 301. Added to these were the trade diversion effect of the North American Free Trade Agreement (NAFTA) and the abrupt downturn in the electronic product cycle, which had caused many economies in the region to suffer significant setback in export growth.
Analysed by major market, exports to the United States were generally weak in the first half of 1996. But there was a marked turnaround in the third quarter, in line with a pick-up in US import demand in the most recent months. While exports to China rose steadily, those to the United Kingdom maintained a notable growth so far this year. Exports to Japan however decelerated somewhat in the third quarter, following strong increases in the first half of the year. Exports to Germany remained slack.
Imports grew by about 3% in real terms in the third quarter over a year earlier. For the first nine months of 1996 taken together, imports rose by about 4% in real terms. Apart from the marked deceleration in growth of re-exports, the significant slackening in retained imports also contributed to this modest growth. The latter fell by about 6% in real terms in the third quarter over a year earlier, and by about 3% in the first nine months of 1996 taken together. The reduction was largely caused by an adjustment to the large inventory build-up last year.
Amidst the relative strength of the Hong Kong dollar and low inflation in the major supplier economies, import prices showed a larger decrease than export prices, leading to a steady improvement in the terms of trade so far this year. Reflecting this as well as the marked slow-down in imports, the visible trade deficit narrowed to $102.1 billion in the first nine months of 1996, equivalent to 9.0% of the value of imports, from $114.0 billion or 10.3% of the value of imports in the same period last
year.