ENG-1982 — Page 66

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Financial System and Economy

1982 was a relatively difficult year for the Hong Kong economy with the effects of the world recession adversely affecting trade and reducing the growth rate of the gross domestic product to about one quarter of that recorded in each of the previous five years. Although the process of adjusting to this lower growth rate caused strains in some sectors, the economy generally adjusted well. The rate of inflation, in terms of consumer prices, eased, and the unemployment rate rose only moderately. The slowdown in the economy's growth rate inevitably impinged on the public finances, and the succession of increasingly large budget surpluses generated in the past few years came to an end.

The Economy

In 1982, the performance of the Hong Kong economy was very much affected by the world recession, considered by many to be the most severe since the 1930s. The economies of most of Hong Kong's major export markets, including the United States, the United Kingdom and the Federal Republic of Germany, remained generally depressed throughout the year. Although the economy of the United States showed some faint signs of improvement in the fourth quarter, this had not resulted in any noticeable revival in the demand for Hong Kong's products by the end of the year. By contrast, China, Canada and Singapore were more promising markets where some growth in domestic exports was recorded. On the whole, domestic exports in real terms showed a decline of about 2.7 per cent, which is the first decline in eight years.

With a small and open economy which is heavily dependent on external trade, Hong Kong also experienced a year of slower growth overall. Preliminary estimates indicate that the growth rate in real terms of the gross domestic product (GDP) was about 2.4 per cent in 1982, compared with 11 per cent in 1981 and 12 per cent in 1980. A growth rate of about 2.4 per cent in the midst of the world recession is nevertheless significant.

Despite the poor performance of domestic exports, domestic demand and activity in the tertiary services sectors continued to provide the impetus to economic growth in 1982. Because the export sector is still the backbone of the Hong Kong economy, the situation in which for two consecutive years economic growth has been led by domestic demand and not domestic exports is one that inevitably causes uneasiness. The growth rate in real terms of domestic demand at 1.2 per cent was, however, substantially lower than in 1981 and 1980 at 11 per cent and 15 per cent respectively. Influenced by the recession, the growth rates of both consumer demand and investment demand slowed down. This was accompanied by a deceleration in the growth rates in real terms of retained imports of consumer goods and of capital goods during the year.

The entrepôt trade was also affected by the world recession. Re-exports, which ex- perienced annual growth rates in real terms of about 30 per cent during the four years