XN000022-1996-03-06 — Page 33

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He said as in the past, last year Hong Kong experienced a cyclical adjustment following a period of particular buoyancy in domestic consumption and reduced private sector building activity as the property market consolidated with the growth in these two areas dampened by a sharp slowdown.

He pointed out that total exports of goods grew by 12 per cent in real terms. Imports of goods, however, grew more rapidly, by 14 per cent in real terms resulting in the visible trade deficit thus widened to ten per cent of the value of imports, somewhat above the average for the past decade.

Mr Tsang explained that this increased deficit reflected in part a 15 per cent increase in retained imports of raw materials for production and infrastructure construction, and in part an impressive 20 per cent growth of investment in machinery and equipment from which the Government should draw considerable encouragement.

"Our balance of trade has deteriorated principally because we have been investing in the expansion of our productive capacity. In due course, this will show itself in increased output, a growth in exports and higher GDP.

"We should also draw encouragement from an 11 per cent growth in real terms in our exports of services, and from the fact that the substantial invisible trade surplus largely offset our visible trade deficit," he emphasised.

Turning to inflation, Mr Tsang noted that the average rate for inflation during 1995, as measured by the CPI(A), was 8.7 per cent. Underlying this was a sharp fall, from 10.1 per cent in January to 6.6 per cent at the end of the year.

He explained that the easing of inflation owed a great deal to the way in which the US dollar gained strength in the latter part of the year. Also contributing were more stable world commodity prices, as well as a significant moderation in China's inflation.

In addition, locally-generated inflationary pressures cased. Specifically, rents and labour costs moderated, while the prices of consumer goods softened.

On labour market, Mr Tsang said last year, Hong Kong experienced an uncomfortable rise in the rate of unemployment.

The increase in the number of people looking for jobs was caused not so much by the lower than expected rate of GDP growth, but was largely a consequence of changes in the labour supply situation. He attributed the trend to the following reasons: