XN000022-1979-04-12 — Page 2

THURSDAY, APRIL 12, 1979

1

ECONOMIC PROSPECTS FOR THIS YEAR

*****

FROM THE STATISTICS THAT HAVE BECOME AVAILABLE IN THE PAST TWO MONTHS, THERE IS SOME EVIDENCE THAT THE ECONOMY HAS STARTED TO TAKE A SLIGHTLY MORE REASSURING COURSE, THE FINANCIAL SECRETARY, THE HON. PHILIP HADDON-CAVE SAID TODAY (THURSDAY).

BUT MR. HADDON-CAVE TOLD THE LEGISLATIVE COUNCIL THAT THE EVIDENCE IS +VERY SLIGHT.+

+

AT THE SAME TIME HE SAID, THERE WAS NO EVIDENCE OF ANY REALLY ADVERSE CHANGES IN THE RATES AT WHICH ANY OF THE KEY VARIABLES AND AGGREGRATES WERE MOVING, COMPARED WITH THE FORECASTS IN THE BUDGET SPEECH.

ON THE EXTERNAL SECTOR, MR. HADDON-CAVE SAID THE GROWTH RATE OF TOTAL EXPORTS FOR THE FIRST QUARTER OF 1979 COMPARED WITH THE FIRST QUARTER OF LAST YEAR HAD PROBABLY OVERTAKEN THAT OF IMPORTS- AND THE GROWTH RATE OF DOMESTIC EXPORTS WAS ROUGHLY THE SAME AS THAT OF RETAINED IMPORTS.

+BUT, AS REGARDS THE DOMESTIC SECTOR, THE GROWTH RATE OF DOMESTIC DEMAND DOES NOT YET SEEM TO BE SLOWING DOWN THE GROWTH RATE OF BANK LOANS AND ADVANCES ACTUALLY ACCELERATED DURING THE FIRST TWO MONTHS OF THIS YEAR, ALTHOUGH THE GROWTH RATE OF THE MONEY SUPPLY HAS SHOWN CLEAR SIGNS OF ACCELERATING AND FOR MR. LI FOOK-WO'S BENEFIT, I WOULD HAZARD A GUESS THAT THE ANNUAL ISED GROWTH RATE OF M2 IS NOW BEGINNING TO APPROACH THE FORECAST RATE OF G.D.P. IN MONEY TERMS.

+HOWEVER IT IS STILL TOO EARLY TO ASSESS DEFINITELY THE EFFECTS OF THE RECENT INCREASES IN INTEREST RATES,+ MR. HADDON-CAVE SAID.

NOTING THAT THE TRADE DEFICIT IN THE FIRST QUARTER OF THIS YEAR WAS A LITTLE BELOW THAT OF THE CORRESPONDING PERIOD IN 1978, MR. HADDON-CAVE SAID: +AS THE RATE AT WHICH THE TRADE DEFICIT IS WIDENING HAS NOT YET BEGUN TO SLOW DOWN APPRECIABLY, IT IS HARDLY SURPRISING THAT THE EXCHANGE VALUE OF THE HONG KONG DOLLAR HAS DECLINED RECENTLY.+

IN THE MONTH OF MARCH, HE SAID, THE TRADE-WEIGHTED EXCHANGE RATE INDEX OF THE HONG KONG DOLLAR FELL BY 2.3 PER CENT AND UP TO YESTERDAY APRIL 11, IT DECLINED BY A FURTHER 2.2 PER CENT.

+BUT THE SPEED OF THIS DECLINE IS AN ABERRATION OF THE MARKET PLACE, WHAT WE ARE NOW SUFFERING FROM AS SO MANY OTHER CURRENCIES HAVE SUFFERED IN THE PAST IS THE SELF-FULFILL ING EXPECTATION BY THE MARKET PLACE OF A DECLINE IN THE RATE, ACCENTUATED BY COMMERCIAL LENDING AND LAGGING.

THE MARKET

+AT SOME STAGE AND SOONER RATHER THAN LATER WILL RECOGNISE THAT THE HONG KONG DOLLAR HAS BECOME TOO CHEAP, AND WILL TURN AROUND, +

/IN OTHER