TNAG-2749-FCO40-3964-Economic-situation-in-Hong-Kong-1993 — Page 68

DOMESTIC ECONOMY

6

The forecast indicates that growth would trough at 5% in 1994 and then pick up. Mr Lane inquired as to the timing and magnitude of the slowdown noting that the economic data for the first half of

this year showed continued strong expansion. Mr Riley questioned whether the authorities would be successful in achieving the desired economic slowdown. Mr Lund explained that the slowdown was

assumed to start in the 4th quarter of 1993 and would hit hardest during 1994. Action: Mr Lund to check the GDP assumption for 1993

in the light of the latest data.

-

7 TRADE ACCOUNT Mr Lund explained that the forecast was essentially based on an absorbtion approach. Strong domestic growth. resulted in the diversion of exports to the domestic market. Mr Lane questioned whether export growth was too strong over the

longer term. The export sector was likely to show signs of maturity after expanding rapidly from a low base in recent years and would

proabably face increasing protectionist pressures in future. Mr

Dobney thought the overall picture for export earnings was not

unreasonable although it was possible that volumes might be lower

and prices higher than shown reflecting China's move up market. Action: it was agreed to reduce trend export volume growth to

around 12% pa by the end of the forecast.

8 Mr Riley noted that there appeared to be an apparent problem with reporting of the imports between the summary section of the

print out and the detailed section. It was noted that the latest

figures suggested that import growth remained very strong in H1

1993. Mr Riley thought that imports may rise faster than forecast as financial liberalisation might reduce domestic savings and

increase access to foreign savings. Mr King commented that it

seemed likely that the import/GDP ratio would increase over time in China. It was also suggested that import volumes might follow a

more cyclical path reflecting the movements in the domestic economy. Action: Mr Lund to remove the apparent inconsistency in the import data, increase the degree of import penetration over time and review whether import volumes should be more cyclical.

9 INVISIBLES

-

Mr Lund explained that the improvement in the service account was based on historical data. Mr Riley suggested