XN000022-1996-05-31 — Page 7

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Economic situation in 1996 1st quarter and updated forecasts

In the May update of the economic forecasts for 1996, the forecast growth rate in real terms of gross domestic product (GDP) is maintained at 5%, same as the forecast released in March.

Gradual recovery in consumer demand, revival in private sector building activity, and continued heavy investment in infrastructural projects are expected to render a stronger growth momentum in the domestic sector.

In addition, şustained robust growth is envisaged for exports of services. These should offset the more moderate growth forecast for exports of goods.

The forecast of consumer price inflation in 1996, as measured by the Consumer Price Index (A), is also kept unchanged from the March forecast, at 7.5%.

The scope for further moderation in inflation, while still available, will probably be smaller in the latter part of 1996, in the light of a gradual pick-up in economic activity over the course of the year and a rebound in the prices of some key commodities in the world market.

Nevertheless, labour resources are now relatively more abundant, and rentals are likely to remain broadly stable in the short term.

In the first quarter of 1996, the growth in exports of goods moderated further. But this was largely attributable to the particularly weak performance in March. Export performance returned to normal in April.

There should have been a further marked increase in exports of services. underpinned by a significant growth in the areas of tourism and professional services. as well as a continued albeit less rapid rise in transhipment and in other trade-related services.

Consumer spending seemed to be bottoming out in the first quarter, as reflected by the improvement in retail sales, the smaller decline in retained imports of consumer goods, and signs of a further increase in demand for consumer services.

There was some revival in private sector building activity, in line with the pick- up in the residential property market.

Concurrently, public sector building activity was bolstered by implementation of the public housing programme. Work on the major infrastructural projects was as intensive as ever, as the Airport Core Programme progressed towards its peak