TNAG-1641-FCO40-2288-Budget-of-Hong-Kong-1987 — Page 12

MANUFACTURING SECTOR AND CONFIDENCE THAT THIS ACTIVITY WOULD

CONTINUE.

3. THE GROWTH IN GDP IN 1986 HAD BEEN SLIGHTLY BELOW NINE

PERCENT, MUCH HIGHER THAN THE ONE PERCENT IN 1985. WITH THE

REVIVAL IN ECONOMIC ACTIVITY THE UNEMPLOYMENT AND THE UNDER-

EMPLOYMENT RATES HAD DECLINED TO 2.2 PERCENT AND 1.2 PERCENT

RESPECTIVELY IN THE FOURTH QUARTER. EARNINGS HAD INCREASED

SIGNIFICANTLY IN REAL TERMS ACCOMPANIED BY ONLY MODEST INFLATION

(2.8 PERCENT). HOWEVER, AS A RESULT OF THE DEPRECIATION OF THE HONG KONG DOLLAR IMPORT PRICES OF CONSUMER GOODS WERE NOW SHOWING

MORE RAPID INCREASES AND THIS, COUPLED WITH FIRMER DOMESTIC

DEMAND, WAS LIKELY TO RESULT IN SOME INCREASED INFLATION.

4. THE FINANCIAL SECRETARY SAID THAT FOR 1937 HE EXPECTED THE

GROWTH RATE OF GDP TO BE LOWER THAN THAT IN 1986. THE GROWTH

RATE OF DOMESTIC EXPORTS WAS LIKELY TO SLOW DOWN WHILE THAT OF DOMESTIC DEMAND WAS EXPECTED TO INCREASE. QUOTA RESTRAINT LIMITS, PARTICULARLY FOR THE UNITED STATES MARKET, WOULD PROBABLY CONSTRAIN EXPORT PERFORMANCE. MOREOVER, IF THE RATE OF DEPRECIATION OF THE

US DOLLAR MODERATED, THE GAIN IN THE PRICE COMPETITIVENESS OF

HONG KONG'S EXPORTS MIGHT BE LESS THAN IN 1986. AS REGARDS CHINA, HONG KONG'S TRADE HAD BEEN AFFECTED BY MEASURES TO RESTRICT

IMPORTS AND TO CONTROL THE USE OF FOREIGN EXCHANGE RESERVES.

WHILE CHINA WOULD NEED TO IMPORT IN ORDER TO IMPLEMENT ITS MODERNISATION PROGRAMMES, SOME CONTROL MEASURES SEEMED LIKELY TO CONTINUE. THE PROSPECTS FOR HONG KONG'S DOMESTIC EXPORTS THIS YEAR WOULD THEREFORE CONTINUE TO BE AFFECTED BY EVENTS OUTSIDE HONG KONG'S CONTROL. HOWEVER IN 1937 HE EXPECTED DOMESTIC EXPORTS TO GROW BY ABOUT SEVEN PERCENT AND RE-EXPORTS BY ABOUT 13 PERCENT. THIS WOULD GIVE A FORECAST GROWTH RATE OF SLIGHTLY LESS THAN 10 PERCENT FOR TOTAL EXPORTS COMPARED WITH A GROWTH RATE FOR 1996 OF ABOUT 15 PERCENT. PRIVATE CONSUMPTION EXPENDITURE WAS FORECAST TO GROW BY SEVEN PERCENT AND THAT OF GOVERNMENT BY SIX PERCENT. CAPITAL INVESTMENT WAS EXPECTED TO GROW BY JUST OVER NINE PERCENT WITH ROUGHLY THE SAME GROWTH RATES FOR BOTH PRIVATE AND PUBLIC SECTORS. THE GROWTH RATE OF IMPORTS FOR 1987 WAS LIKELY TO BE 11 PERCENT. HE EXPECTED A VISIBLE TRADE DEFICIT OF ABOUT HKD8 BILLION. THE FORECAST GROWTH RATE OF GDP FOR 1987 WAS JUST OVER SIX PERCENT.

5. WITH REGARD TO MONETARY ISSUES, THE FINANCIAL SECRETARY SAID THE BETTER THAN EXPECTED PERFORMANCE OF THE ECONOMY IN 1986, AND THE LOWER AND DECLINING INTEREST RATES OVER THE YEAR HAD LED TO A GENERAL IMPROVEMENT IN ASSET PRICES, MOST NOTABLY THOSE OF FINANCIAL ASSETS. THE STOCK MARKET, FOR EXAMPLE, HAD PEFORMED STRONGLY, HELPED BY THE INFLOW OF FOREIGN INVESTMENT FUNDS TO