TNAG-1650-FCO40-2297-Hongkong-and-Shanghai-Banking-Corporation-(HSBC)-1987 — Page 19

BEEAGJ

THE HONG KONG ECONOMY

General economic situation

1.

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.

accelerated but is still within tolerable limits.

Inflation has

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 at an historic low of 1.8 per cent, while the underemployment 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