ENG-1988 — Page 70

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The Economy

FOLLOWING two consecutive years of double-digit economic growth, the overall growth rate of the Hong Kong economy was more moderate in 1988. The growth momentum of domestic exports eased further during the first half of the year. The year-on-year growth rate in real terms of domestic exports declined from 23 per cent for 1987 as a whole to 11 per cent in the first quarter and six per cent in the second quarter of 1988, while in the third and the fourth quarters the corresponding growth rates were eight per cent and 11 per cent. The gross domestic product (GDP) rose by an estimated 7.4 per cent in real terms in 1988. Reflecting a more balanced pattern of growth between external demand and domestic demand, domestic exports rose by about 8.9 per cent, and total domestic demand by about 7.2 per cent, in real terms in 1988.

With the economy operating virtually at full capacity, conditions in the labour market remained tight and vacancies were widespread. The seasonally adjusted unemployment rate fell to 1.3 per cent towards the end of 1988. Earnings in the manufacturing sector and in most of the service sectors increased significantly in money terms. After discounting the effect of inflation, the gains in real terms in many of those sectors were still significant.

In the property market, demand for residential and commercial property was strong during 1988. Prices and rentals for these two types of property recorded significant increases over their levels in 1987. However, there were signs of stabilisation in the market for industrial property towards the end of the year. Investment in both plant and machinery, and building and construction remained strong.

The Consumer Price Index (A), as one of the major indicators of inflation, averaged 7.5 per cent higher in 1988 than in 1987. The corresponding figure for 1987 over 1986 was 5.5 per cent. The rate of increase in consumer prices experienced in 1988 was higher than the average annual increase of 5.4 per cent recorded over the last five years, but was still below the average of 8.9 per cent for the past decade.

Structure and Development of the Economy

Because of its limited natural resources, Hong Kong has to depend on imports for virtually all of its requirements, including food and other consumer goods, raw materials, capital goods, fuels, and even water. It must, therefore, export on a sufficient scale to generate the foreign exchange earnings to pay for those 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 1988 the total value of visible trade (comprising domestic exports, re-exports and imports) amount- ed to 234 per cent of the GDP. If the value of imports and exports of services is also included, this ratio becomes 267 per cent. Between 1978 and 1988, Hong Kong's domestic exports grew at an average annual rate of about eight per cent in real terms, which was