INTERNATIONAL MONETARY FUND
1993 Article IV Consultation Discussions
Hong Kong
Concluding Remarks
Confidential
December 9, 1993
Hong Kong's favorable economic performance over the past year has been particularly
notable against a background of weak activity in many industrial economies. Private spending,
both on consumption and fixed Investment, has remained robust, and confidence is strong in spite
of uncertainties about the outcome of Sino-British negotiations. Consumption has been buoyed by
negative real interest rates, rising incomes, and higher asset prices, while investment spending has
been stimulated by the prospect of increased activity on major public works projects.
Overall export growth has remained rapid, reflecting rising re-exports to and from China.
Domestic exports, however, have been stagnant, due to the effects of the continued outsourcing of
manufacturing activity to China, weak activity in major markets, and rising costs of domestic
production. Combined with the stimulus to imports provided by the expansion of domestic
demand and further appreciation of the currency in real effective terms, trade in goods and
nonfactor services has fallen to rough balance in relation to GDP, in contrast to the surpluses
observed since the mid-1980s.
Consumer price inflation, while still high, has moderated from the peak reached in 1991.
Lower import prices appear to have played an important role in moderating inflation, while growth
in wages has been stable in the range of 10-11 percent. The unemployment rate has edged up,
but overall labor market conditions suggest that Hong Kong is at, or near, full employment.
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