XN000022-1996-04-03 — Page 49

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Economic forecasts

Some Members commented that our economic forecasts for this year are too optimistic. I can appreciate how people look at forecasts against the usual uncertainties for the future, and particularly in periods where the economy is faced with the impact of significant extraneous events. Opinions about the likely performance are bound to differ, and forecasts put out by the private sector are not necessarily the same as that of the Government. But this time I sense a 'consensus range' of private sector forecasts on the GDP growth rate for 1996 which is actually not much different from our own forecast figure of 5%. Most private sector analysts suggest a growth rate in between 4.5% and 5%, and a few suggest an even better growth.

We do not make forecasts out of the air. Every time when our economic forecasts are produced or updated, we deploy a comprehensive macro-econometric model which encompasses all the key aspects of demand in our economy which together constitute the overall economic performance. The trade sector covering both visible and invisible trade is one such key aspect. Domestic demand covering both consumption and investment is another. The model process is fully quantitative and is backed up by a wealth of data from the Census and Statistics Department. We also have a panel of representatives from relevant departments working together with our economists to appraise the model-run results against their knowledge of latest developments in the sectors under their purview. In short, we strive to produce forecasts which, as much as possible, are systematic and scientific. Full details of our forecasts are explained in the 1996 Economic Prospects. a standard document accompanying the Budget Speech.

On Hong Kong's economic outlook for 1996 I have grounds to be optimistic. Our export growth for the first two months of this year has remained satisfactory notwithstanding a high base of comparison in the same period last year. Locally. sentiment has turned for the better, as the unemployment rate has receded somewhat. and as the pick-up in both the stock market and the residential property market is carried over into the current year. In line with an improved sentiment, consumer spending can also be expected to improve. Moreover, construction work on the Airport Core Programme is now progressing to its peak. The services sector should receive a boost from our various promotion initiatives. Upon these positive factors it is not unreasonable to expect the growth pace of the economy to revive to its trend rate for the medium term. As for inflation, the Consumer Price Index (A) recorded a year-on- year increase of 6.2% for the first two months of 1996 combined, well below our forecast of 7.5% for the year as a whole. I see scope for a further moderation of inflation during the course of this year particularly on the domestic front, along with greater stability in the prices of our imports. Barring significant adverse developments such as non-renewal of China's Most Favoured Nation trading status in the United States. the economy should be able to attain a slightly faster growth this year. accompanied by a more distinct slow-down in inflation.