XN000022-1979-08-12 — Page 2

SUNDAY, AUGUST 12, 1979

THE ECONOMY ADJUSTING IN 1979

******

DURING THE FIRST HALF OF 1979, THE ECONOMY HAS BEEN CONTINUING THE ADJUSTMENT PROCESS BEGUN IN 1978, WITH THE EXPORT SECTOR ASSUMING INCREASING IMPORTANCE AS THE SOURCE OF ECONOMIC GROWTH.

THIS IS SPELT OUT IN THE GOVERNMENT'S HALF-YEARLY ECONOMIC REPORT RELEASED TODAY (SUNDAY).

THE REPORT REVIEWS PRIMARILY EVENTS IN THE FIRST HALF OF 1979.

IT POINTS OUT THAT THE GROWTH RATE OF TOTAL FINAL DEMAND WAS ADJUSTING IN A DIRECTION MORE IN LINE WITH THE GROWTH RATE OF THE ECONOMY'S OUTPUT, SO THAT THE RATE AT WHICH THE VISIBLE TRADE DEFICIT IS WIDENING IS SLOWING DOWN.

THE VISIBLE TRADE DEFICIT WAS SMALLER IN RELATION TO IMPORTS IN THE FIRST HALF OF 1979 THAN IT WAS IN THE FIRST HALF OF 1978.

THE REPORT INDICATES THAT THE SHARP ACCELERATION IN THE GROWTH RATE OF DEMAND FOR EXPORTS HAS MAINTAINED THE PRESSURE OF EXCESSIVE DEMAND ON RESOURCES. SO SHORTAGES OF LABOUR CONTINUED TO PREVAIL, WAGE RATES INCREASED RAPIDLY AND, AS EXPECTED, THERE WAS A TENDENCY FOR DOMESTIC PRICES TO ACCELERATE IN THE FIRST HALF OF 1979.

BUT THE REPORT FORECASTS THAT DEVELOPMENTS IN THE REST OF THE WORLD AND IN THE DOMESTIC ECONOMY ARE LIKELY TO COMBINE TO CAUSE THE EXCESS DEMAND TO EASE OFF GRADUALLY

IN THE SECOND HALF OF THIS YEAR.

THE REPORT INDICATES THAT THE EXTERNAL SECTOR WAS REMARKABLY ACTIVE IN THE FIRST HALF OF 1979 DESPITE A GENERAL SHORTAGE OF DOMESTIC RESOURCES COUPLED WITH RAPID INCREASES IN THE PRICES OF THESE RESOURCES.

BETTER ECONOMIC PROSPECTS IN HONG KONG'S MAJOR MARKETS IN EUROPE AND THE SUBSTANTIAL DEPRECIATION OF THE HONG KONG DOLLAR AGAINST STERLING AND THE DEUTSCHEMARK WERE AMONG THE MAJOR FACTORS LEADING TO THE ACCELERATION IN THE GROWTH RATE OF DOMESTIC EXPORTS.

THE VALUE OF DOMESTIC EXPORTS IN THE FIRST HALF OF 1979 WAS 34 PER CENT HIGHER THAN IN THE FIRST HALF OF 1978.

THE GROWTH RATES OF DOMESTIC EXPORTS TO THE UNITED KINGDOM AND THE FEDERAL REPUBLIC OF GERMANY WERE PARTICULARLY RAPID.

ALTHOUGH THE GROWTH RATE OF IMPORTS WAS STILL VERY RAPID (36 PER CENT), IT WAS SIGNIFICANTLY LESS THAN THAT OF TOTAL EXPORTS (39 PER CENT).

/FURTHERMORE