TNAG-1641-FCO40-2288-Budget-of-Hong-Kong-1987 — Page 6

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1986 performance

6. Hong Kong's economy has bounced back from the recession of 1985

Real GDP growth was almost with an impressive performance in 1986.

9% (1% in 1985: in what follows, percentage changes are in real terms over the previous year). Domestic exports, which had fallen by 5% in 1985, grew by 16%. Encouraging also was the pick-up in investment after two very slack years. Investment in plant and machinery grew by almost 8%, and imports of these capital goods

(Figure 1 shows retained for use by local manufactures grew by 26%. changes in the main components of GDP.)

7. An unemployment rate of 3.5% is usually regarded as representing full employment in the Territory.

With the actual rate

This

at 2.2%, rises in real earnings were seen in most sectors. more rapid rise in wage costs, and the delayed effect of higher import prices as the HK$ has depreciated in line with the US$, has meant that inflation started to rise towards the end of 1986.

slightly the year as a whole, however, the CPI(A) rose by 2.8%, below the 1985 increase of 3.2%.

External

8.

For

The continuing improvement in competitiveness in markets other than the USA has had a dramatic effect on export growth:

Domestic exports to major markets

1986/85 (real

increase %)

USA

China

FRG

UK

Japan

9

16

35

13

32

(The relative importance of the Territory's major markets is shown in figure 2.)

9.

Developments of note in major markets were:

a shift to almost full utilisation of textile and clothing quotas in the USA, which will constrain growth there in the future;

rising exports of semi-manufactured goods for processing in China, particularly in Shenzhen SEZ and the Pearl River Delta. Re-exports of goods originating in China also showed very rapid growth during 1986 (up by 49% in value terms) reflecting the Chinese export drive in non-oil commodities.

Financial

10. After two stagnant years, bank and deposit-taking company (DTC) lending rose quite sharply in 1986, reflecting both the rise in trade and in domestic activity. Interest rates were also low.