TNAG-0621-FCO40-769-Budget-of-Hong-Kong-1977 — Page 7

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5.

So we fared well in 1976, but let us not forget

that exports, employment and real wages, having reached a

peak in 1973, slumped dramatically for eighteen months in 1974 through to mid-1975. Our estimates of the gross domestic product reflect this: after increasing by 14%

in 1973, the economy grew very slowly in 1974 and 1975.

As the management of the public finances must be geared

to such fluctuations, the brakes had to be applied in

1975-76.

This was partly responsible for the rapidity of our advance in 1976 for we were virtually inflation

free and so able to take full advantage of such recovery of world trade as took place.

6.

The question now is: how can we view the next four years? I think we may safely assume that the fluctuations of the past four years are safely behind us. We cannot expect such a rapid rate of growth in 1977 as in 1976, but the output of goods and services as measured

by the gross domestic product should increase by about 7% and this I would regard as most satisfactory. Consumer prices will increase a little faster this year perhaps by as much as 6% compared with the increase of 3% during 1976. By world standards the increase in prices in 1976 was a commendable performance and reflected

in part the external strength of the Hong Kong dollar. After 1977 the likely course of the world economy on

which we are so dependent is not clear, but undue worry is not called for at this stage. I suggest also that

we are a little less vulnerable to external forces than we

used to be since the pattern of our exports is becoming

more diversified and there are the benefits accruing from

the emerging financial sector of our economy.

7.

It was against this background of satisfactory reserves, fast recovery in 1976 and a forecast of continuing growth into 1977 that I prepared the 1977-78 budget.

After considering our revenue prospects, I decided that we could increase public expenditure by about 15% in terms

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