ENG-1983 — Page 80

THE ECONOMY

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probably marked a period of consolidation in employment in this sector, following the rapid growth in the past few years as well as the slump in the property market. Employment on building and construction (including civil engineering) sites also fell.

Earnings in the manufacturing sector increased in real terms in the 12 months ending June 1983 as workers began to benefit from the improvement in export performance. In the 12 months ending September, however, earnings in manufacturing increased by eight per cent in money terms and decreased by two per cent in real terms as the rate of inflation accelerated towards the end of the year. Salaries in the tertiary services sectors, in terms of payroll per person engaged, remained relatively stable in real terms. While construction wage rates rose moderately in money terms, they decreased by seven per cent in real terms. Thus, despite the rapid increases in the prices of building materials in the latter part of the year, the increase in building and construction (including civil engineering) costs in 1983 was moderate.

Property Market

Apart from the market for small domestic units, the property market continued to be fairly depressed in 1983 with prices and rentals easing throughout the year. Although some developers had continued to adjust the pace of building work, the additional supply of property in the private sector, in terms of total usable floor area of buildings completed, was substantial in 1983. This, together with the high vacancy position in respect of most types of property at the end of 1982, resulted in a general over-supply of property in relation to demand. Nevertheless, towards the end of 1983 there were some signs of a bottoming-out for certain classes of property in particular locations. Movements in land prices are closely related to movements in the prices of property. As the property market remained weak, the trend of falling land prices continued in 1983.

The Financial Scene in 1983

The financial scene in 1983 was dominated by a general lack of confidence, principally arising from concern over the future of Hong Kong. The most noticeable development was the sharp depreciation of the Hong Kong dollar during the first nine months of the year. During the first quarter, the trade-weighted exchange rate index fluctuated within a fairly narrow range of between 78.2 and 79.3. During the second and third quarters, influenced by wide fluctuations in' the exchange rates world-wide, a very strong US dollar, political uncertainty and a lack of confidence, the foreign exchange market was very volatile and the Hong Kong dollar came under considerable downward pressure. From 78.4 at the end of March, the trade-weighted exchange rate index fell sharply to a low of 70.3 on June 8, with the exchange rate against the US dollar touching $7.70 per US dollar on the same day. There was then a change in sentiment and the exchange rate recovered to about $7.20 to the US dollar and on a trade-weighted basis to about 74. But the Hong Kong dollar came under pressure again in August and September. The exchange rate fell some 15 per cent against the US dollar on September 23 and 24, amid increasing anxiety, to stand at $9.50 per US dollar, with the trade-weighted index touching a low of 57.2, in thin trading on the morning of September 24.

By then depreciation appeared simply to be feeding on itself. Such a sharp depreciation was far greater than could be explained in terms of any rational assessment of current or prospective economic developments. Efforts to lend support to the exchange rate by raising local interest rates on a number of occasions prior to that date had had only a limited stabilising effect. The government then issued a statement on September 25 to the effect that it was considering measures to stabilise the Hong Kong dollar; the Association of Banks