XN000022-1996-08-30 — Page 11

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Following the substantial inventory accumulation in the local economy in 1995, a moderating adjustment in the first half of 1996 is natural. When this inventory adjustment is largely gone over, probably sometime in the latter part of this year, retained imports should resume positive growth.

The forecast growth rate in real terms of exports of services in 1996 is kept unchanged, at 10%. Apart from the further shift in re-exports to offshore trading, the continued growth in tourism as well as in exports of financial and other business services should also provide support.

However, the forecast growth rate in real terms of imports of services in 1996 is revised downwards, from 7.5% to 6%. This is mainly to take account of the slower growth in demand for the various services related to imports of goods, which is now forecast to grow less rapidly than earlier expected.

In the domestic sector, the forecast growth rate in real terms of private consumption expenditure in 1996 is maintained at 4%. Consumer spending showed signs of bottoming out in the first half of 1996.

Retail sales resumed positive growth, having been on a decline for most of 1995. Sales of motor vehicles, which had suffered particularly severe setback since the middle of 1994, rebounded strongly.

A number of positive factors should help underpin consumption demand in the remainder of the year. These include the improved employment situation, continued increase in earnings in real terms in most of the major sectors, relatively moderate inflation, stable interest rates, price discounts at retail outlets, and the wealth effect stemming from the pick-up in the stock and property markets since the beginning of this year.

The forecast growth rate in real terms of government consumption expenditure in 1996 is also maintained at 5%.

On investment spending, gross domestic fixed capital formation is now forecast to grow by 9.2% in real terms in 1996, up from the growth rate of 7.6% forecast earlier. Within this total, expenditure on building and construction is forecast to rise by 9.2% in real terms, and expenditure on machinery and equipment by 9.8% in real

terms.