56 D073528 200M 2/74 Cr.P.C. 839/3
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13.
wages to profits since the gross domestic product did not decline, in real terms, in 1974 but, instead, remained static. The drop in real household incomes during the year was reflected in reductions in the quantities of various foodstuffs consumed and in a pronounced switch from private to public transport. The number of applications for private telephones also showed a sub-
stantial decrease.
27. The stabilisation of consumer prices in 1974 was largely a consequence of a turn-round in import prices. Overall, import prices declined by 3% as between the second and third quarters of the year and by a further as between the third and fourth
quarters. Domestic export prices also deolined in the second
half of the your as inflationary pronmuros abroad mibsided (tho quintupling of oil prices since October 1973 notwithstanding) and as deflationary influences took effect. These price trends continued into the first quarter of 1975 and, indeed, became more pronounced (between 5 and 10%), but with domestic export prices generally falling faster than import prices, Hong Kong's terms of trade continued, on balance, to deteriorate, to become, by April, less favourable than at any time since 1968. The se declines in prices, coupled with decreases also in the quantities imported and exported (which, in the first quarter of 1975, were reflected in a further, though modest, decline in employment), brought about a narrowing of the visible trade deficit. Even so, the deficit for 1974 as a whole was a record HK34,000 million which compares with HK$3,000 million for 1973).
(i) Flotation of the Hong Kong Dollar
28. The net surplus on invisibles also deteriorated in 1974, to about HK$1800 million (from HK$2,000 million in 1973), and this was partly on account of a decline in expenditure by incom- ing visitors and tourists. Nonetheless, the balance of payments, overall, moved back into surplus and this was principally a result of substantial net inward movements of funds on short- term capital account (amounting to around HK5,000 million). To an extent, these funds were attracted by the fact that interest rates in Hong Kong, which had continued to rise in the first half of the year in line with movements abroad, were, in the second half of the year,
a little slow to follow overseas rates down- wards. But this can only be a partial explanation. No doubt, increased political instability in the surrounding region and
the absence of internally generated inflation in Hong Kong added to the attractiveness of the Hong Kong dollar. Towards the end ot 197 the Hong Kong dollar anuronlaind
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