XN000022-1985-04-17 — Page 4

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IN LAY .IL 17, 1985

+THIS WILL LEAVE THE FUND WITH IMPROVED BALANCES AT THE END OF 1984-85 PROVIDING A FURTHER USEFUL CUSHION TO CARRY INTO 1985-86, AND ENABLING ME TO REDUCE TRANSFERS IN FUTURE YEARS,

+ THE EFFECT IS TO REDUCE SLIGHTLY THE EXPECTED DEFICIT ON GENERAL REVENUE ACCOUNT FOR 1984-85 (EXCLUDING THE BOND ISSUE) FROM $1 757 MILLION INDICATED IN MY BUDGET SPEECH TO $1 695 MILLION SAY $1.7 BILLION, SIR JOHN SAID.

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TURNING TO REVISED ECONOMIC PROSPECTS FOR 1985 SIR JOHN SAID THERE HAD BEEN NOTEWORTHY DEVELOPMENTS IN EXCHANGE RATES AND DOMESTIC EXPORTS.

+BECAUSE OF OUR LINKED EXCHANGE RATE SYSTEM, IF THE RECENT DOWNWARD MOVEMENT OF THE U.S. DOLLAR WERE SUSTAINED IT SHOULD MEAN THAT DOMESTIC EXPORTS WILL BE ABLE TO REGAIN SOME OF THE PRICE COMPETITIVENESS THEY HAVE LOST OVER THE PAST YEAR OR SO,+ HE SAID.

HE POINTED OUT THAT DOMESTIC EXPORTS TO THE UNITED STATES AND TO THE MAJOR EUROPEAN MARKETS IN THE FIRST TWO MONTHS OF THIS YEAR WERE LOWER THAN WAS EXPLICIT IN HIS FORECAST.

+DOMESTIC EXPORTS TO CHINA ON THE OTHER HAND HAVE BEEN CONSIDERABLY HIGHER,+ HE SAID.

+ INCREASING TRADING AND OTHER ECONOMIC LINKS WITH CHINA ARE THUS PROVIDING OUR ECONOMY WITH AN IMPORTANT NEW SOURCE OF GROWTH.+

+AS REGARDS DOMESTIC DEMAND, MY FORECAST FOR PRIVATE CONSUMPTION EXPENDITURE MAY TURN OUT TO BE CONSERVATIVE IF CONSUMER CONFIDENCE CONTINUES TO GROW, HE SAID.

TURNING TO INFLATION, SIR JOHN SAID THE PRESENT RATE OF AROUND FOUR PER CENT MADE HIS FORECAST OF 5.5 PER CENT ON AVERAGE FOR 1985 SEEM PESSIMISTIC.

+ IT ALLOWS, HOWEVER, FOR SOME DEPRECIATION OF THE HONG KONG DOLLAR AGAINST OTHER MAJOR CURRENCIES DURING THE YEAR AND FOR A MILD INFLATIONARY IMPACT OF THE TAX CHANGES IN MY BUDGET.

+DESPITE THE UNFAVOURABLE CONSEQUENCES FOR INFLATION, SOME DEPRECIATION OF THE HONG KONG DOLLAR WOULD BE USEFUL IN RESTORING THE COMPETITIVENESS OF OUR EXPORTS, HE SAID.

IN CONCLUSION, SIR JOHN SAID WHILE HE ACCEPTED ON BALANCE THAT THERE MIGHT NOW BE A HIGHER RISK OF THE ACTUAL GROWTH OF DOMESTIC EXPORTS IN 1985 NOT REACHING HIS FORECAST OF 11 PER CENT, IT WAS FAR TOO EARLY TO COMTEMPLATE REVISING EITHER THAT FORECAST OR THAT FOR THE GDP OF SEVEN PER CENT,

+ THE APPROPRIATE TIME FOR ANY REVISIONS THAT MAY BE NECESSARY WILL BE MY MID-YEAR REVIEW IN SEPTEMBER,+ HE SAID.

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