XN000022-1996-08-30 — Page 12

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A number of favourable developments should continue to underpin overall investment spending. Revival in the property market has strengthened development interest, which in turn is expected to boost private sector building activity. Concurrently, there is a greater demand for fitting out and interior decoration work.

In the public sector, building and construction expenditure will continue to be supported by intensive work on the major infrastructural projects, particularly those under the Airport Core Programme, as well as increased output from the Public Housing Programme.

As to machinery and equipment, intake by the public sector, mostly for the Airport Core Programme, is expected to surge strongly, while private sector expenditure should continue to rise, albeit at a more moderate pace.

Putting the component forecasts together, GDP is now forecast to grow by 4.7% in real terms in 1996. This is slightly below the growth rate of 5% forecast earlier, but at par with the growth rate attained in 1995.

Along with a pick-up envisaged for both exports and domestic demand, overall economic growth can be expected to fare visibly better in the second half of the year, after bottoming out in the first half.

CPI(A), as a common measure of consumer price inflation, is forecast to increase by an average of 6.8% in 1996, down from the 7.5% increase forecast earlier. The inflation outturn so far has been better than initially expected. Present indications are that the situation is likely to remain broadly stable over the next few months.

Of the cut by 0.7 of a percentage point in the forecast increase, 0.5 of a percentage point reflects the more favourable underlying inflation situation, and 0.2 of a percentage point corresponds to the switch from the old 1989/90-based CPI to the new 1994/95-based CPI which results in a relatively lower measured rate of increase.

There is scope for a further downward adjustment in the inflation forecast later in the year, if the situation continues to be favourable.

The Half-yearly Economic Report 1996 is now on sale at $30 a copy at the Government Publications Centre on the ground floor. Lower Block, Queensway Government Offices, 66 Queensway, Hong Kong.