TNAG-1999-FCO40-2846-Meeting-between-Douglas-Hurd--Secretary-of-State-for-Foreign-1990 — Page 38

55460/sbn

RECENT ECONOMIC PERFORMANCE

April-March)

(Fiscal year:

Overview:

Real GDP:

External Position:

Exchange Rate and Interest Rates:

Inflation:

Unemployment:

Fiscal:

Money Supply:

Stock Market:

UK Trade

HONG KONG

Growth slowing rapidly o/a external factors (lower US demand, cutbacks in China) and domestic uncertainty over future. Inflation around 10%. Labour shortages emerging in part o/a emigration. New infrastructure package of HK$127 bn (£10 bn) up to 2006 announced October 1989 to boost confidence up to 1997.

After experiencing real growth rates of 11.8% in 1986 and 13.5% in 1987 the economy slowed to 7.4% in 1988 on weaker growth in investment and private consumption; 6% was initially forecast for 1989, but reached only 2.5% after sharp fall in Q3 and Q4 1989. 0% growth in Ql with 2-3% forecast for 1990.

Domestic export growth has slowed down from 11.5% in 1988 to 3% in 1989 and fell 6% (y-o-y) in April. Re-export growth slowed from 51% in 1988 to 26% in 1989 and 10% (y-o-y) in April 1990 owing to uncertainties over Chinese political and economic situation. Import growth (reflecting domestic export slowdown) slowed from 32% in 1988 to 13% in 1989 and 6% (y-o-y) in April. US$1.1 bn trade surplus in 1989, c/w US$0.5 bn deficit in 1988.

*

Exchange rate has recently been relatively stable around the link rate of HK$7.80 US$1 although it has in the past been prone to bouts of speculative pressure in both directions. Revised monetary arrangements partly tested by run on Bank of China in June, but exchange rate largely unaffected. Prime lending rate, which has been above US rates this year, was raised from 10% to 11% on 2 April.

After rising to 5.5% in 1987, CPI Index A rose 7.5% year-on-year at end-1988 and 10.1% in 1989. Currently just under 10%.

Considerable labour shortages. Latest unemployment level 1.7%,

(1.3% at end-1989).

1988/89 surplus was HK$16.8 bn (3.9% GDP), cf forecast HK$5.5 bn. 1989/90 surplus HK$9.3 bn (2.1% of GDP) 1990/91 estimate HK$720 mn (0.2% of GDP).

Year to end-April: M3 +16%; M2 +17.2%; Ml +8.5%. All aggregates accelerating.

Market Capitalisation HK$592 bn at end-89, HK$284 bn. Hang Seng Index 2837 end-1989, following a fall to 2093 after 4/5 June.

turnover in 1989 2687 at end-1988 3145 on 7 June

In 1989 balance of US$1.3 bn (Fob-cif) in Hong Kong's favour, (exports US$3.0 bn, imports, US$1.7 bn).

June 1990