TNAG-2977-FCO40-1469-Economic-policy-in-Hong-Kong-1982 — Page 175

CODE 18,77

08011

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Mr Ec HKGD

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FIRST QUARTER ECONOMIC REPORT 1982 diffinities over

1. You sought comments on the report and its implications.

The External Sector

next

year

ক%

2. The report notes that in the first three months of this year, real domestic exports were static. (A recent trade figures release shows a nominal decline of half a per cent during April.) Real exports to Western markets have declined, with sales to the UK and FRG being more depressed than to the USA. (Exports to China and Australia have continued to grow in real terms.)

3.

This tends to bear out the view expressed in ESID's discussion of the February budget: that the forecasts for expanding world trade and for recovery in Hong Kong's main export markets did seem over-optimistic.

4.

-

-

Should this lack of growth in Hong Kong's domestic exports persist, the Financial Secretary's real GDP growth forecast for 1982 of 8 per cent may well become unattainable (domestic exports are around 60 per cent of GDP).

5. Evidence for a continuing poor export performance comes in the real fall in retained imports. Imports of consumer goods have fallen, but there have been more rapid reductions in retained raw materials and semi-manufactures, and capital goods. A similar fall was recorded in the last quarter of 1981 and was partly the result of limited plans for production to meet future export demand. That this has continued in the first quarter of 1982 does not look well.

The Financial Sector

in

6. The figures on total money supply growth and increase/extension of credit for domestic purposes over this period [at 7.1 and 9.1 per cent] are something of a reversal of lower increases towards the end of 1981. but seasonal factors mean that limited importance should be attached to them.

7. There is some evideme that the abolition of the withholding tax on foreign currency deposits has increased their relative attractiveness. It is too early to suggest whether there has been an increase in banking activity as a result of this change however.

Prices

8.

Weak domestic demand, decreases in prices and rents of property, and an increase in the trade-weighted index of the HK$ (3.3 per cent higher by the end of the period) have contributed to a slight fall in the consumer price index to about 13 per cent on a year-on-year basis. ie. a reduction i

inflation.

/Conclusion