While these are all relevant factors, the slide in the external value of the HK$ has been partly the result of (and has itself encouraged) a lack of enthusiasm to hold the currency given present uncertainties.
7. The Report refers to the considerable pressure on the HK$ during the second quarter, with the rate against the US$ reaching $7.70 and the trade-weighted index falling to 70.3 (from around 78 during the first quarter) by early June. By the end of the first half of the year there was some recovery, to $7.20 and 73.8. These gains have since been reversed, with values of $7.64 and 70.6' on 5 September.
8. The recovery of the Hong Kong stock exchange index (from around 760 in early January) to over 1,000 during April is noted. There was a fairly rapid fall during June (to 863) but at the end of the first half of the year the index was just below 1,000 again. Since then the index has risen to almost 1,100 in July, and subsequently drifted down continually to 928 on 5 September.
Unemployment
9.
Bearing out the recovery in manufacturing for export is some evidence on increased employment in manufacturing during the second quarter. Seasonally adjusted total unemployment fell for the first time since the second quarter of 1982 - at the end of Q1 83 it was 5.1%, at the end of Q2 83 4.4%.
Prices
10. The rate of increase in consumer prices has increased to 10% p.a. from 9% at the end of Q1. It is noted that the effect of the depreciation of the HK$ in raising import prices will probably mean more rapid inflation in the rest of the year. Over-supply in the property market was still leading to falls in rentals during this period - reducing the total increase in the index of consumer prices.
Comment
11. A continued growth in export volume at the rate experienced during the first half of 1983 would probably lead to an annual rate of growth in 'real' GDP for 1983 higher than the Budget forecast of 4% - around 6%. Increased imports of inputs to production indicate confidence that increased activity in manufacturing can be sustained, though the risks if the US economy, for example, should falter are clear.
12.
The evidence for weak investment demand (from capital goods import figures) does suggest a continued unwillingness to make even a medium-term commitment which reflects the nervousness shown in securities and foreign exchange markets. It will be interesting to see if this trend continues with a .pick-up in growth.
8 September 1983
Nick Hallett
N O Hallett ESID
WH425B 233 5335
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