TNAG-1267-FCO40-1616-Economic-situation-in-Hong-Kong-1983 — Page 324

CODE 18.77

бол

Buyton

HKK 8984

6984.

RECEIVED IN REGISTRY

Mr Burton (HK), WH312)

16 JUN 1983

DESK OFFICER

INDEX

PA

Register on the economy,

Reference...... ther

Mer man's

Ми

Aur

ATGISTR 7

Action Taken 17A.

HONG KONG: FIRST QUARTER ECONOMIC REPORT 1983

07

Товен вопыт 10/6.

(13)

1. This report indicates that the early part of this year showed only rather limited signs of improvement for the Territory's economy.

The External Sector

2.

Some encouragement may be derived from the rise in domestic exports (2% in real terms) relative to Q1 1982. Exports to the USA actually rose by 9% on this basis. The forecast for 1983 offered at the time of the Budget was for a real increase of 5% in domestic exports, though it was expected that most of this increase would come in the second half of 1983.

3.

Imports continue to show weak domestic demand; retained imports of consumer goods fell by 3% in real terms in the first quarter. Real levels of retained imports of fuels and capital goods continue to decline, while new material and semi-manufactures imports were static. (The report notes indications that the second quarter of this year showed a recovery in imports of inputs to production important leading indicator of increased economic activity.)

The Financial Sector

4.

an

The widest definition of the money supply grew by 4.2% during Q1, but again as a result of increases in foreign currency deposits. These grew by 10.9% while HK$ deposits fell by 1.4%. The report continues to impute this development to the interest tax changes of February 1982, but the post-tax disadvantage in return on HK$ holdings is unlikely to be the main reason for their unattractiveness. Political uncertainty and what appear to be strongly-held

expectations of further declines in the currency's external value are also relevant.

5. The growth of loans and advances during Q1 (at 4.3%) is somewhat lower than during 1982, and is further evidence of the depressed state of the domestic economy.

Unemployment

6.

The seasonally adjusted rate stood at 4.5% for the quarter ending February 1983, an increase from the rate of 3.9% for the previous quarter. Manufacturing employment fell, and real wages in this sector declined during 1982. The report notes that the upturn in domestic export performance has not led to an increase in labour demand. This is probably related to the fact that employment held up surprisingly well during a time of falling demand in 1982 under-employment of hoarded labour may well be declining at present.

Prices

7. Consumer price inflation remained at about 9% on a year-on-year basis for the first quarter, but further rises can be expected as a result of recent sharp falls in the HK$'s external value which will increase the domestic price of imports.

/Comment