PJMAFN
CONFIDENTIAL
VISIT OF LORD GLENARTHUR TO HONG KONG: 29 JUNE 1 JULY 1988
BACKGROUND BRIEF A: THE HONG KONG ECONOMY
1.
While the economy remains generally buoyant, there has been a
slow-down in the growth rate of domestic exports since the third
quarter of 1987. In the first quarter of this year, domestic
exports grew by about 11% in real terms over a year earlier,
compared with growth rates of 15% in the fourth quarter of last year
and of 23% for 1987 as a whole. As Hong Kong is an export-oriented
economy, a slackening in the growth rate of domestic exports is
expected to result in a slow-down in the growth rate of the economy
generally.
2. The labour market is still tight. The seasonally adjusted
unemployment rate in the first quarter of 1988 was at an historic
low of 1.6%, although this was partly distorted by a reduced labour
supply during the lunar new year period in February. Labour
shortages continue to be reported, particularly in building and
construction. Wages and salaries have risen rapidly over the past
year or so and the level of vacancies is still high, but there are
early signs that the pressure of demand for labour may have begun to
ease.
3. The present rate of inflation is fairly high compared with Hong
Kong's major overseas markets and with the neighbouring economies which are Hong Kong's main export competitors. The consumer price index showed a year-on-year rate of increase of 6.8% in the first
quarter of this year, compared with corresponding rates of increase of 5.6% and 6.7% in the previous two quarters. It is likely that
the inflation rate will increase further in the short term, before
it falls again in line with the expected slow-down in the growth
rate of the economy.
4.
Following two consecutive years of double-digit growth, Hong
Kong's gross domestic product is forecast to increase by 5%
in real terms in 1988. This growth is expected to be more balanced
CONFIDENTIAL
A
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