XN000022-1995-07-26 — Page 41

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(ii)

Although the retail and restaurant sectors are in the midst of a cyclical adjustment, a number of other sectors in the economy are doing well. The performance on the trade front is particularly impressive. Our domestic exports grew by about 8% in real terms in the first five months of this year, in stark contrast to the decline of 2% just last year. The growth rate in real terms of our re-exports, which has been consistently robust for many years, accelerated from 14% last year to about 18% in the first five months of this year. Concurrently, exports of services, particularly on offshore trading and the various services supporting merchandise trade, should have continued to rise significantly. Locally, investment spending has remained robust, underpinned by a strong absorption of machinery and equipment as well as intensive work on the new airport and related projects.

The good export performance and the strong growth in fixed asset investment should provide the key impetus to overall economic growth for the rest of the year, offsetting the slow-down in consumer spending. We are of the view that, in overall terms, the economy should still be able to attain respectable growth this year.

(iii) Our current forecast of real GDP growth for 1995 is 5.5%. Notwithstanding the increased downside risks, we believe this forecast is still broadly in order. A regular update of our short-term economic forecast will be carried out in August. Results will be announced towards the end of August, together with the publication of the Half- yearly Economic Report 1995.

(iv)

We are doubtful about the merits of seeking to artificially stimulate the economy, especially at a time of relatively high inflation. The Government's main role continues to be to provide an environment which is highly conducive to business. Market opportunities, which are not lacking in Hong Kong, in fact constitute the most effective direct economic stimulus. As to the pressures of resources and costs on businesses, the moderation of the labour market and the property market in recent periods should have an alleviating effect, thereby rendering an indirect economic stimulus.

End/Wednesday, July 26, 1995