XN000022-1995-11-08 — Page 32

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State of Hong Kong's economy

Hong Kong is not experiencing a recession. As we announced in August, we have trimmed our original forecast for this year's GDP growth in real terms from 5.5 to 5 per cent. First quarter growth performance was remarkable at 5.9 per cent. But the pace of growth in the second quarter slowed somewhat, to 4.8 per cent, as we announced on Monday. Nevertheless we still expect to achieve a growth of 5 per cent this year. Domestic exports have recovered well from the 2 per cent decline last year and grew by about 5 per cent in real terms in the first nine months of this year. Re- exports are continuing to advance strongly with a 16 per cent expansion in the first nine months of this year. The investment picture is also very encouraging. Retained imports of capital goods increased by 28 per cent in real terms in the first nine months in 1995. This reflects a strong investment trend, as businesses build up the capital equipment they need to expand their productive capacity.

I

Given these facts, I do not think anyone can seriously doubt that our economy is soundly based or that it is continuing to grow steadily. But there are real concerns about our economic prospects, as this motion demonstrates that. These concerns seem to be focused on some key issues: the slower pace of growth, the higher rate of unemployment and the persistent pressure on inflation. These are the problems which we must face and overcome together.

Prospects for economic growth

Let me start with economic growth. If I have interpreted the mood of this Council correctly, the real concern is that our revised growth forecast for the year could be a warning sign of worse to come. That is, a concern about a deterioration in our competitiveness, in market conditions and in our ability to adjust to changed circumstances. There also appears to be a worry that we cannot simply leave it to market mechanisms to take the strain or find the answers. I recognise the force of these concerns. I can assure Members that we will continue to be vigilant in monitoring the economic data for the first sign of serious difficulties ahead. Nevertheless, I do not see how a modest paring of the 1995 growth forecast produced early in the year would justify a loss of faith in the free market policies which have served us so well for so long. In any case, our commitment to markets and competition must apply not only in good times but also when times are not so good, or even bad. Hong Kong cannot be a "fair weather" free market.