CODE 18-77 AWO Ltd.
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Employment
13. An unemployment rate of 3% is normally taken to represent 'full employment'. At the end of June the seasonally adjusted rate fell
the lowest rate ever recorded and "... indicative of a very tight labour market", with greater pressure seen in the second quarter.
to 1.8%
14.
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Recruitment difficulties have meant that manufacturing employment has not increased in the first quarter of 1987 (the latest available figures) while the number of vacancies has gone up by 85%. This is broadly the picture in all sectors.
15.
Consequently there have been marked increases in labour incomes, both because of more overtime work and higher basic wages. In the year ending March 1987, earnings in nearly all sectors rose by about 12% in cash terms, some 7% in real terms (public sector earnings rose by somewhat less, while construction sector earnings rose more sharply). Average wage rates in manufacturing rose by 8% in money terms, 4% in real terms.
Prices
16.
As a result of increases in import prices consequent on the depreciation of the currency, and domestic cost pressure resulting from very high capacity utilisation, the inflation rate is moving upwards. The year-on-year rate of increase in the Consumer Price Index (A) rose from 3.6% in Q4 1986 to 4.3% in Q1 1987 and 5.4% in Q2 1987. Factors holding the rate down include weak world commodity prices, the stable prices of imports of food and consumer goods from China (41% and 46% of total imports of these categories respectively) and the outlet of manufacturing capacity within China which has allowed a greater supply response to increased demand.
Comment
17. The forecast for real GDP growth given in Mr Jacob's Budget in Februrary was 6.2%, with an estimate of real domestic export growth of 7%. This figure is apparently to be revised in the 21 September review to 11%, but the outturn for the year could be higher.
18.
The underlying forecasting model used by the HKG seems to have under-estimated the effects of the HK$ depreciation on the competitive position of the Territory's exporters and hence on the demand for domestic exports. The strength of China's push on non-oil exports (hence on transit trade through Hong Kong) and the increasing involvement of manufacturing facilities on the mainland in Hong Kong production (with impacts on both directions of trade) has also come as something of a surprise.
19. With the maintenance of the US$ link at its current level, and assuming no increase in protectionist barrier to HK exports, what is the outlook?
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