CONFIDENTIAL
has fallen steadily, from over 12 per cent in January 1984 down to
6.5 per cent in the three months ending October. The strength of
the Hong Kong dollar under the linked exchange rate system
introduced in October 1983 has been a major contributory factor.
·
5. Looking ahead to 1985, the Hong Kong economy remains as always
vulnerable to external events, and it is likely that the world
economy will grow rather less rapidly. The latest statistics on order-book positions and on retained imports of raw materials and
semi-manufactures suggest that while the short term prospects for domestic exports remain generally good, there may be a slowing down
in the growth rate of domestic exports in the coming months.
6. The assurances of stability and continuity provided by the
draft agreement on the future of Hong Kong will improve investment sentiment. As a result higher investment in property and in plant
and machinery, by both local and overseas investors, should emerge
and investment demand should increase next year.
7. The rate of inflation will probably stabilize slightly over US
levels, unless a sharp depreciation of the Hong Kong dollar occurs
in 1985 (along with the US dollar under the present linked exchange
rate system).
8. It remains the Hong Kong Government's aim to produce a balanced
budget in 1986/87.
Hong Kong Department
12 December 1984
CONFIDENT I AL
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