XN000022-1986-02-26 — Page 38

WEDNESDAY, FEBRUARY 26, 1986

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PRIVATE CONSUMPTION EXPENDITURE WAS FORECAST TO GROW AT 3.5 PER CENT AND GOVERNMENT CONSUMPTION EXPENDITURE AT TWO PER CENT. SIR JOHN SAID IN LINE WITH IMPROVEMENT IN EXPORT PERFORMANCE, PRIVATE SECTOR EXPENDITURE ON PLANT AND MACHINERY WAS FORECAST TO GROW BY THREE PER CENT AND PRIVATE SECTOR EXPENDITURE ON BUILDING AND CONSTRUCTION BY SIX PER CENT.

THE LATTER TOOK ACCOUNT OF WORK IN PROGRESS FOR MANY LARGE SCALE PROJECTS, SUCH AS THE NEW CONTAINER TERMINALS AND THE EASTERN HARBOUR CROSSING. PUBLIC SECTOR EXPENDITURE ON BUILDING AND CONSTRUCTION WAS FORECAST TO GROW BY THREE PER CENT, TAKING INTO ACCOUNT WORK IN PROGRESS FOR THE PUBLIC HOUSING PROGRAMME AND SUCH LARGE PUBLIC WORKS PROJECTS AS THE ROUTE 5 LINKING SHA TIN WITH KWAI CHUNG AND THE TUEN MUN LIGHT RAIL TRANSIT SYSTEM.

THESE FORECAST, WHEN COMBINED WITH THE FORECASTS OF OTHER, SMALLER, COMPONENTS, GAVE A GROWTH RATE FOR GROSS DOMESTIC FIXED CAPITAL FORMATION FOR 1986 OF THREE PER CENT, A SIGNIFICANT IMPROVEMENT OVER 1985.

SIR JOHN SAID: THE FORECAST GROWTH RATE OF IMPORTS ASSOCIATED WITH THESE FORECASTS OF FINAL DEMAND IS SIX PER CENT, THE SAME AS IN 1985. NET EXPORTS OF SERVICES ARE FORECAST TO GROW BY NINE PER CENT COMPARED WITH A DECLINE OF ONE PER CENT FOR 1985.

+LET ME GET TO THE CRUX. THESE FORECASTS FOR THE INDIVIDUAL COMPONENTS OF EXPENDITURE, WHEN COMBINED, GAVE A FORECAST GROWTH RATE OF THE GDP OF ABOUT 4.5 PER CENT.+

SIR JOHN SAID IF THESE EXPECTATIONS WERE FULFILLED ECONOMIC GROWTH IN 1986 WOULD BE LARGELY EXPORT-LED. THE GROWTH RATE OF TOTAL FINAL DEMAND (EXCLUDING RE-EXPORTS) AT FIVE PER CENT, WAS EXPECTED TO BE ONLY SLIGHTLY HIGHER THAN THAT OF THE GDP AND SHOULD NOT THEREFORE GENERATE SIGNIFICANT INTERNAL INFLATIONARY PRESSURES. THERE WOULD, HOWEVER, BE SOME INFLATIONARY PRESSURES IF THE HONG KONG DOLLAR DEPRECIATED FURTHER, ALONG WITH THE U.S. DOLLAR UNDER THE LINKED EXCHANGE RATE SYSTEM.

HE ADDED: +THE AVERAGE RATE OF INFLATION OF CONSUMER PRICES IN 1986 IS EXPECTED TO BE ABOUT FIVE PER CENT, AND THUS SLIGHTLY HIGHER THAN IN 1985. THE FORECAST RATE OF INCREASE IN THE GDP DEFLATOR IS FOUR PER CENT. I DISTINGUISH BETWEEN THE ESTIMATE OF FIVE PER CENT OF GROWTH IN CONSUMER PRICE INFLATION AND OF 4.5 PER CENT ASSUMED FOR GOVERNMENT COST INFLATION IN THE MEDIUM RANGE FORECAST.

+THE FORECAST GROWTH RATE OF THE GDP IN 1986 IN MONEY TERMS IS NINE PER CENT, IMPLYING A CURRENT PRICE GDP OF $289 BILLION. AT CURRENT PRICES, PER CAPITA GDP IN 1986 SHOULD THUS BE $53 000, OR ABOUT US$6 800.+

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