ENG-1986 — Page 74

52

THE ECONOMY

per cent growth recorded in the previous year, but was still below the growth rate of the GDP, reflecting the government's policy of keeping public expenditure under control. Investment demand, measured in terms of the gross domestic fixed capital formation, grew by seven per cent in real terms in 1986, after a fall of two per cent in 1985. Among the main components of investment demand, expenditure on building and construction showed little change in real terms in 1986, with the fall in public sector expenditure due to the completion of the MTR Island Line and of some public works projects being offset by an increase in private sector expenditure on some major building projects. In contrast, expenditure on plant, machinery and equipment grew by eight per cent in real terms in 1986, after having decreased by two per cent in 1985. Of this increase, a significant proportion was attributable to higher investment in plant and machinery for use in the manufacturing sector.

The Labour Market

The recovery in the economy generally and in domestic exports in particular resulted in an increase in the demand for labour in 1986. At the same time, there was an increase in the supply of labour due to a higher labour force participation rate and an increase in the population of working age. Because of the tight demand for labour, both the unemployment rate and the underemployment rate declined during the year. In the fourth quarter of 1986, the seasonally adjusted unemployment rate and the underemployment rate stood at 2.2 per cent and 1.2 per cent respectively, compared with the corresponding rates of 3.1 per cent and 2.3 per cent in the same quarter of 1985. These rates are low by historical standards, and reflect virtual full employment in Hong Kong.

Reflecting the strong performance of domestic exports, manufacturing activity experi- enced a significant revival in 1986. The quantity index of industrial production in the first three quarters of 1986 was 15 per cent higher than in the same period in 1985, after a decline of five per cent in 1985 as a whole. At the same time, there was an improvement in labour productivity (defined as output per employee) in the manufacturing sector, attributable partly to increased investment and a higher level of utilisation of plant and equipment, and partly to more overtime work.

Comparing September 1986 with the same month in 1985, manufacturing employment increased by two per cent to 869 800. Employment in the services sectors as a whole also increased, by four per cent to 983 300. Within the services sectors, employment in the wholesale, retail and import/export trades and in restaurants and hotels both grew by four per cent, and in financial, insurance, real estate and business services by seven per cent. Employment on building and construction (including civil engineering) sites increased by seven per cent over this period, reversing its declining trend (on a year-on-year comparison) since the second quarter of 1981. For the building and construction industry as a whole, employment (covering both site workers and non-site workers) increased by five per cent.

On labour incomes, employees in the manufacturing, trading and services sectors enjoyed a significant increase in earnings (measured by payroll per person engaged) in money terms and in real terms during the 12 months ending September 1986. They are normally the direct beneficiaries during an upswing in external trade. Over the same period, construction wage rates also showed some increase in money terms and in real terms.

The Property Market

The take-up rate for most types of property appeared to have improved or to have remained at a high level in 1986. Against the background of a reduction in the supply of