TNAG-0543-FCO40-638-Strength-of-garrison-in-Hong-Kong-1975 — Page 158

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26. Consumer prices for 1974 as a whole were some 14% higher than in 1973, but they had stabilised by the second half of the year and the decline in real wage rates, therefore, also levelled off. Nevertheless with declining employment and evidence of short-time working and working by rotation, it seems likely that there was a further shift of incomes from 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.

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 3% as between the third and fourth quarters. Domestic export prices also declined in the second half of the year as inflationary pressures abroad subsided (the 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, 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 HK34000 million which compares with HK$3000 million for 1973).

Flotation of the Hong Kong Dollar

These

28. The net surplus on invisibles also deteriorated in 1974 to about HK$1800 million (from HK 2000 million in 1973), and this was partly on account of a decline in expenditure by incoming 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 HK$5000 million). To an extent these funds were attracted by the fact

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