ENG-1986 — Page 66

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The Economy

AFTER the sluggish performance in 1985, the Hong Kong economy recovered significantly in 1986. The growth rate in real terms of the gross domestic product (GDP) accelerated from 0.6 per cent in 1985 to an estimated 8.7 per cent in 1986. The strong recovery in domestic exports provided the main impetus to this overall growth.

The buoyant export demand, coupled with the steady growth in domestic demand, helped to keep the unemployment rate at a low level. With the unemployment rate at 2.2 per cent in the fourth quarter of 1986, the labour force was effectively fully employed. Earnings in most economic sectors rose significantly in real terms. The demand for most types of property strengthened, and trading in the property market was active.

Despite an acceleration in import prices for many commodities, the rate of increase in consumer prices by the end of 1986 was still moderate. The lower prices of goods from China, due to the devaluation of the Renminbi, had some dampening effect on the increase in consumer prices. For the year as a whole, the Consumer Price Index (A) recorded an average increase of 2.8 per cent over 1985.

Structure and Development of the Economy

Hong Kong, because of its limited natural resources, has to depend on imports for virtually all of its requirements, including food and other consumer goods, raw materials, capital goods, fuel and even water. It must, therefore, export on a sufficient scale to generate the foreign exchange earnings to pay for these imports, and the volume of exports must continue to grow if the population is to enjoy a rising standard of living.

The externally oriented nature of the economy can be seen from the fact that in 1986 the total value of visible trade (comprising domestic exports, re-exports and imports) amounted to 190 per cent of the GDP. If the imports and exports of services were also included, this ratio would become 221 per cent. Between 1976 and 1986, the average annual growth rate of domestic exports in real terms was about nine per cent, which was roughly twice the growth rate of world trade. As a result, Hong Kong ranks high among the world's trading economies.

Contributions of the Various Economic Sectors

The relative importance of the various economic sectors can be assessed in terms of their contributions to the GDP and to total employment.

Primary production (comprising agriculture and fishery, and mining and quarrying) is small in terms of its contribution to employment and the GDP.

Within secondary production (comprising manufacturing; the supply of electricity, gas and water; and construction), manufacturing accounts for the largest share of the GDP as well as of employment. The contribution of the manufacturing sector to the GDP declined