XN000022-1985-09-23 — Page 4

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MEDAY, SEPTERE: 23, 1985

DOMESTIC CONSUMER DEMAND WAS SLUGGISH, AS INDICATED BY THE RELATIVELY LOW GROWTH RATES OF RETAINED IMPORTS OF FOODSTUFFS AND OF CONSUMER GOODS. THE GROWTH RATE OF RETAINED IMPORTS OF CAPITAL GOODS ALSO SLOWED DOWN IN THE SECOND QUARTER, AS THE WEAK DOMESTIC EXPORT PERFORMANCE SO FAR THIS YEAR BEGAN TO HAVE AN EFFECT. ON MANUFACTURERS' INVESTMENT INTENTIONS.

NEVERTHELESS, SIR JOHN SAID, THE PROPERTY MARKET HAD SHOWN +CLEAR SIGNS OF REVIVAL+.

THE RATE OF TAKE-UP FOR ALL MAJOR CATEGORIES HAD IMPROVED, WITH PRICES AND RENTALS RECORDING INCREASES.

A NUMBER OF FAVOURABLE FACTORS, SUCH AS THE RISE IN REAL INCOMES FOLLOWING THE BUOYANT ECONOMIC PERFORMANCE IN 1984, THE FALL IN PROPERTY PRICES AND RENTALS OVER THE PAST FEW YEARS TO MORE REALISTIC LEVELS AND SEVERAL REDUCTIONS IN MORTGAGE RATES HAD COMBINED TO BRING A RESURGENCE OF INTEREST IN PROPERTY PURCHASE.

THE UNEMPLOYMENT RATE AT 3.0 PER CENT, AND UNDEREMPLOYMENT RATE AT 1.0 PER CENT IN THE SECOND QUARTER OF THIS YEAR, REMAINED STABLE.

+WE STILL RECKON THAT AN UNEMPLOYMENT RATE OF ABOUT 3.5 PER CENT REPRESENTS EFFECTIVE FULL EMPLOYMENT IN HONG KONG,+ SIR JOHN SAID.

AS CHANGES IN UNEMPLOYMENT TENDED TO LAG BEHIND CHANGES IN OTHER ECONOMIC CONDITIONS AND AS EMPLOYERS TENDED TO HANG ON TO THEIR LABOUR, THE SLACKENING IN DOMESTIC EXPORT PERFORMANCE IN RECENT MONTHS HAD NOT RESULTED IN A MEASUREABLE RISE IN THE UNEMPLOYMENT RATE, SIR JOHN ADDED.

SPEAKING OF THE MARKED LOW RATE OF INFLATION, SIR JOHN SAID THAT WHILE THE RELATIVE STRENGTH OF THE HONG KONG DOLLAR EARLIER IN THE YEAR HAD HAD SOME FAVOURABLE EFFECTS ON IMPORT PRICES, THE MODERATE RATE OF INFLATION IN HONG KONG'S MAJOR TRADING PARTNERS AND THE CONTINUED EASING IN WORLD COMMODITY PRICES HAD ALSO HELPED.

HIS BUDGET FORECAST OF AN AVERAGE INCREASE OF 5.5 PER CENT IN THE CP1 (A) FOR THE YEAR NOW APPEARED TO BE HIGH, AND HE THEREFORE REDUCED IT TO FOUR PER CENT.

+WE MAY DO BETTER, OF COURSE MUCH DEPENDS ON FUTURE MOVEMENTS OF THE U.S. DOLLAR, TO WHICH THE HONG KONG DOLLAR IS FIRMLY FIXED,+ SIR JOHN SAID.

SPEAKING OF THE HONG KONG DOLLAR, HE SAID THAT,

HE SAID THAT. +DESPITE GYRATIONS+ IN THE EXCHANGE RATE OF THE U.S. DOLLAR AGAINST OTHER MAJOR CURRENCIES. THE EXCHANGE RATE OF THE HONG KONG DOLLAR TO THE U.S. DOLLAR HAD REMAINED CLOSE TO THE LINKED RATE.

/IN JULY