TNAG-1641-FCO40-2288-Budget-of-Hong-Kong-1987 — Page 26

13.

At 2.8%, the average rate of increase in the Consumer

Price Index (A) was lower than the rate of 3.2% recorded in

1985. Soft world commodity prices and, in particular, lower import prices of goods from China helped to bring this about.

But as a result of the depreciation of the Hong Kong dollar, import prices of consumer goods have shown more rapid increases since the second quarter of 1986. This, coupled with firmer domestic demand, is likely to result in some increased

inflation. We have already seen signs of this in the consumer price indices towards the end of 1986.

14.

For 1987, I expect the growth rate of GDP to be lower

than that in 1986, but still satisfactory (6). The growth rate

of domestic exports is likely to slow down, while that of domestic demand is expected to increase. Economic growth in our major overseas markets, including the United States, is expected to be slightly faster than last year. But the quota restraint limits particularly for the United States market will probably constrain export performance. Moreover, if the rate of

the US dollar moderates in depreciation of

as 1987,

likely, the gain in the price competitiveness of our exports may

be less than in 1986.

seems

15.

As regards China, our trade has been affected by

use of measures adopted to restrict imports and to control the foreign exchange reserves. Whilst China will need to import in order to implement its modernisation programmes, some control measures seem likely to continue.

16.

The prospects for our domestic exports this year will

therefore continue as

to be affected by events outside our control. From previous experience we have seen how difficult it accuracy the combined

is to

influences, and my

with assess

export

forecasts

of effect

should

be

external

interpreted

(6)

See '1987 Economic Prospects'.

5

/against