TNAG-2977-FCO40-1469-Economic-policy-in-Hong-Kong-1982 — Page 83

G.F. 326

CONFIDENTIAL # 3

5.

The downward revisions that have been made in the

forecasts for our major markets and our closely associated

relatively poor export achievement mean that my forecasts

for the growth rates of our domestic exports and GDP in

1982 made at the beginning of this year were clearly too

high. Hindsight is a very exact science. In fact in the

first half of 1982 domestic exports in real terms dropped

by 3%, re-exports in real terms showed no growth, and

imports in real terms dropped by 4%. Despite these

figures, the performance of Our manufacturers and

exporters has been marvellous. They have faced their many

externally imposed difficulties with courage

enterprise as befits our market

continue to Owe them much.

based economy.

and

We

Let no one say that the

Government is unaware of their tribulations. It is not

true.

6.

Changes in trade flows of this order clearly have

implications for the exchange value of the Hong Kong

dollar through the influence of the corresponding, though

not necessarily simultaneous, changes in financial flows

that they generate. Thus in an

economy where the visible

trade gap is narrowing one would expect, other things

being equal, to see the exchange rate strengthening.

This

in broad terms is what has been happening in Hong Kong.

In terms of the effective exchange rate index the exchange

value of the Hong Kong dollar has strengthened by about 09

since this time last year, while for example the visible

trade gap for the period June to August has narrowed from

11% to 7.4%.

CONFIDENTIAL #