TNAG-1483-FCO40-2037-Economic-situation-in-Hong-Kong-1986 — Page 265

3.

CODE 18-77

•HKK 090/2.

RETIVEL

CRTAT

23 JUL 1986

DESK OFFICER

Reference...

R+ Rese

布

ver 1817

per

PA

Taken

AjB 23

Mr Thomas, HKD

INDEX

HONG KONG: FIRST QUARTER ECONOMIC REPORT 1986

1. This report has recently arrived. The following is a summary of the main points, and some brief comment.

FOREIGN TRADE

2. The decline in the quantity of exports of goods produced in Hong Kong (of 5% during 1986) has been halted in Q1 1985, with 1% growth. Real growth rates of domestic exports (relative to the first quarter last year) to main markets are as follows:

( 8 )

USA China FRG

UK Japan

1

-22

18

-3

6

3. Rapid growth in domestic exports to Germany and Japan is probably due to the decline in the value of the HK$ improving competitiveness in these markets. The fall in exports to the PRC follows the extremely high growth rates of 1985 and is the result of tightened central control over the use of foreign exchange.

4. Data on retained imports suggests some improvement in consumer demand within the Territory and growth in inputs to production that reflects expectations of continued export growth. Growth rates in real terms for categories of imports retained for use in Hong Kong are as follows:

Year-on-year

comparison (%)

Consumer

goods

Fuels

Raw materials and semi- manufactures

Capital goods

1985/1984

Q1 1986/Q1 85

3

- 6

10

6

6

9

3

3

5. Re-export business declined by 6% in volume, due largely to a significant fall in goods re-exported to China (still accounting, however, for a third of all re-exports in Q1 1986).

FINANCIAL

6. The HK$ has remained very close to the "link" rate of 7.80 against the US$ during this period. With the continuing decline in the US currency's external value, the HK$ trade-weighted index fell by 4% between the end of 1985 and the end of March 1986. Against strengthening currencies such as the yen and the DM, the HK$ fell by 10% and 5% respectively.