G.F. 326
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CONFIDENTIAL ##
The Hong Kong Economy
General economic situation
The Hong Kong economy was buoyant during the first half of 1987 and seems likely to remain so at least for the rest of the year. The surge in exports, coupled with firm domestic demand, has provided the main impetus to growth. Unemployment is at an historic low, and shortages of labour
exist in many sectors. Inflation has accelerated but is
still within tolerable limits.
External trade
2.
Domestic exports grew by about 27% in real terms
in the first half of 1987 over the first half of 1986:
by June, the growth momentum had been sustained for sixteen
months. Sustained demand for Hong Kong products in the
major overseas markets and the cumulative depreciation against most major currencies of the Hong Kong dollar (in
line with that of the US dollar with which it is linked)
have contributed to this performance. Re-exports grew by
about 49% in real terms in the first half of 1987 compared
with a year ago, mainly due to the flourishing entrepot
trade with China. Imports also showed a year-on-year
increase of 35% in real terms.
The labour market
3.
Buoyant economic activity has led to a very tight
labour market. During the second quarter of 1987, the
seasonally adjusted unemployment rate was 1.1%. Labour
shortages were becoming widespread, exerting considerable upward pressures on wages and salaries. Earnings per worker in the manufacturing sector, for instance, increased by 7%
in real terms in March 1987 compared with March 1986.
Inflation
4.
Taking the Consumer Price Index (A) as an
indicator, the year-on-year rate of increase rose from 3.6%
in the fourth quarter of 1986 to 4.3% in the first quarter
of this year, and to 5.4% in the second quarter.
Nevertheless, the current inflation rate is still fairly low
compared with Hong Kong's experience over the past decade.
/cont'd.
CONFIDENTIAL #B
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