ENG-1985 — Page 76

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THE ECONOMY

Hongkong Bank building and Phase I of Exchange Square. Concerning investment in plant, machinery and equipment, private sector expenditure decreased by three per cent in real terms in 1985, after the growth rate of 24 per cent in 1984. This reflected in part the effect on investment intention in the manufacturing sector of the sluggish domestic export performance throughout 1985.

Labour Market

The supply of labour was generally stable in 1985, with an increase in the population of working age largely offset by a decline in the labour force participation rate. The demand for labour was sustained at a relatively high level, with a further increase in employment in the services sectors more than offsetting the declines in employment in the manufacturing sector and on building and construction sites. Thus for the labour force as a whole, the unemployment rate and the underemployment rate remained at a relatively low level. The seasonally-adjusted unemployment rate and the underemployment rate stood at 3.2 per cent and 1.1 per cent respectively in the fourth quarter of 1985, compared with 3.8 per cent and 1.0 per cent respectively in the fourth quarter of 1984.

Consistent with the weak performance of domestic exports, industrial production, measured in terms of the quantity index of manufacturing output, declined by five per cent on average in the first three quarters of 1985, compared with the same period in 1984. The fall in manufacturing output was accompanied by a fall in labour productivity, measured in terms of manufacturing output per person engaged. This was in part due to the smaller number of hours worked and a lower utilisation of plant and machinery.

Comparing September 1985 with September 1984, employment in the manufacturing sector (at 848 900) fell by six per cent. Over this period, employment in the wholesale, retail and import/export trades (at 415 200) increased by nine per cent, and in the finance, insurance, real estate and business services sector (at 179 200) by seven per cent, but that in restaurants and hotels (at 174 500) remained stable. Employment on building and construc- tion (including civil engineering) sites (at 64 400) fell by five per cent. During the year, there was a shift in employment from civil engineering projects to building projects, as well as from public sector building sites to private sector building sites.

Wages and earnings in the manufacturing sector continued to increase both in money terms and in real terms in the 12 months ending September 1985, although at a slower rate compared with the previous 12-month period, reflecting the adverse effects of the sluggish domestic export performance on incomes. On the other hand, salaries in the tertiary services sectors, in terms of payroll per person engaged, showed more rapid increases. Construc- tion wage rates increased moderately in money terms but only slightly in real terms.

Property Market

The property market has shown clear signs of revival upon a return of confidence following the initialling of the Sino-British Agreement in September 1984. The rate of take-up for most major categories of finished property improved during 1985 and vacancy rates fell. Prices and rentals of residential property generally, and of medium to large residential flats in particular, showed quite significant increases. Prices and rentals of other types of property, however, remained fairly stable or recorded slight increases during 1985.

Movements in land prices are closely related to movements in the prices of property. Although there is no reliable overall measure of movements in land prices, land prices appeared to have followed an uptrend in 1985. The government land auctions met with favourable responses, indicating increased confidence among property developers.