TNAG-1762-FCO40-2516-Economic-situation-in-Hong-Kong-1988 — Page 42

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CODE 18-77

Mr Morris, HKD

Meghan

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CONFIDENTIAL

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19/4.

нксо НКС 090

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1814

Reference..

HONG KONG: INVESTMENT IN THE FOURTH QUARTER

1.

1. Moms done already

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यार्च

Thank you for sending me this report to look at. I return it with this minute.

2. The paper is of special interest. It deals with the fourth quarter (QIV) of 1987, which the recent budget documents reported as providing indications of a moderation of growth towards the end of last year.

These were used to back up the forecast of growth of only 5% in 1988. Presumably the specific analysis in this report underlies the fixed capital formation projection of 4% for 1988, compared with 15.2% in 1987.

3.

The two sub groups of fixed capital investment, plant and machinery and construction, are dealt with separately. For both a slowdown in growth at the end of 1987 is reported, but is emphasised more for the former catagory: the moderation was more definite and pronounced, and is expected to continue through 1988. The comments below are mainly concerned with investment in machinery and equipment. My principal concerns are:

a. the data is not reported very well, hindering interpretation.

b.

1988.

To query the pessimism of the remarks about prospects for

The QIV Slowdown

4. The case that there was an investment slowdown in QIV is not well made. All the figures referred to are quarterly year on year figures. There are no rates relating to the previous quarter, or levels of investment. Nor is there enough information to deduce these.

5. Such measures have their uses, but in a highly volatile economy such as Hong Hong they do not tell us very much. We cannot infer an assertion about developments between quarters from annual growth rates, even if measured quarterly. For example, the large "falls" in the last column of tablelare cited as showing a slow down, whereas in fact they do not necessarily show this. The report partly recognises this in saying that a slowdown might appear because of the high base of the previous year. But we are given no information on this base high growth rates in 1986 IV tell us nothing since these have to be related to the base in 1985 IV, which in turn is not supplied. Similar remarks can be applied to table 2.

6. This is not to say there has been no slowdown. But the story is not well told. The figures as presented give us no obvious feel for what is happening. Some quarterly levels are needed to make

the picture clearer.

CONFIDENTIAL