XN000022-1996-05-31 — Page 14

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In the domestic sector, the evidence that consumer spending has tended to bottom out in the first quarter, and that sentiment has clearly improved on the back of the pick-up in the stock and property markets and a more stable labour market situation, lends support to maintaining the earlier forecast of a 4% growth in private consumption expenditure in real terms.

A more balanced growth in spending on the range of consumer items, comprising not only a continued steady increase in purchases of non-durable goods and consumer services but also a return to positive growth in motor vehicle sales, is envisaged for the rest of the year.

The forecast growth rate in real terms of government consumption expenditure is also kept unchanged, at 5%.

On investment spending, for all components combined, gross domestic fixed capital formation is forecast to grow by 7.6% in real terms in 1996, faster than the growth of 6.1% in the March forecast.

Analysed by component, the forecast growth rate in real terms of private sector expenditure on building and construction is revised upwards to 2%, from the March forecast of -2%.

This reflects partly a better outlook for private sector building activity generally, and partly the work progressing for the franchises at the new airport. Renovation and interior decoration are also expected to revive, consistent with a more active property market.

For the same reason, transfer costs of land and buildings are forecast to increase more rapidly, by 15% in real terms in 1996, as compared to 5% in the March forecast. In line with increased building output in the private sector, real estate developers' margin is expected to show a smaller decline of 2% in real terms, as against a 6% decline in the March forecast.

Public sector expenditure on building and construction is expected to maintain a strong growth of 17% in real terms in 1996, same as the March forecast. Work on the major infrastructural projects, notably those under the Airport Core Programme. continues to accelerate. The public housing programme is also set to intensify further.

Taking the private and the public sectors together, the forecast growth rate in real terms of total expenditure on building and construction in 1996 is raised from 6.6% to 8.8%.