TNAG-1748-FCO40-2467-Visit-by-Sir-Geoffrey-Howe--Secretary-of-State-for-Foreign-a-1988 — Page 287

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MIPT: SECRETARY OF STATE'S VISIT TO HONG KONG: BRIEF ON THE

HONG KONG ECONOMY

BEGINS:

016561

MDHIAN 9539

1. WHILE THE ECONOMY REMAINS GENERALLY BOUYANT 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 PERCENT IN REALTERMS OVER A YEAR EARLIER, COMPARED WITH GROWTH RATES OF 15 PERCENT IN THE FOURTH QUARTER OF LAST YEAR AND OF 23 PERCENT 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 PERCENT, 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 TAE 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 (A) SHOWED A YEAR-ON-YEAR RATE OF INCREASE OF 6.8 PERCENT IN THE FIRST QUARTER OF THIS YEAR, COMPARED WITH CORRESPONDING RATES OF INCREASE OF 5.6 PERCENT AND 6.7 PERCENT IN THE PREVIOUS

TWO QUARTERS. IT IS LIKELY THAT THE INFLATION RATE WILL INCREASE

FURTHER IN THE SHORT TERM, BEFORE IT FALL 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 PERCENT

IN REAL TERMS IN 1988. THIS GROWTH IS EXPECTED TO BE MORE BALANCED

BETWEEN EXTERNAL TRADE AND DOMESTIC DEMAND THAN IN 1987. THE RATE

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