ENG-1988 — Page 84

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The Economy in 1988

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. There was a marked deceleration in the growth rate of domestic exports. Re-exports, however, continued to grow rapidly. In line with the consolidation of the economy, there was also a slow-down in the growth rate of domestic demand.

With the economy operating virtually at full capacity, the unemployment rate remained low throughout the year, and vacancies were widespread. The rate of consumer price inflation increased, although in terms of the average annual rate of inflation it was still lower than the average figure recorded over the past decade. The demand for residential and commercial property was strong, with significant increases in prices and rentals for these two types of property. The market for industrial property, however, showed signs of stabilisation towards the end of the year.

Preliminary estimates show that the growth rate in real terms of the GDP was seven per cent in 1988, following increases of 12 per cent in 1986 and 14 per cent in 1987. Thus, the economy grew at an average annual rate of 11 per cent over the past three years, an enviable record by any standards. Economic growth in 1988 showed more balanced contributions from external demand and domestic demand.

External Trade

In 1988, domestic exports grew by 11 per cent in money terms, or by about nine per cent in real terms. This represents a marked slow-down when compared with an increase of 27 per cent in money terms, or 23 per cent in real terms, recorded in 1987. The slow-down was concentrated in the first half of 1988, when the year-on-year growth rates in real terms of domestic exports were 11 per cent in the first quarter and six per cent in the second quarter. In the third and the fourth quarters, the corresponding growth rates were eight per cent and 11 per cent. The slower growth in overall imports in some of the major overseas markets, and the restraining effect on the external competitiveness of Hong Kong's products as the US dollar gained some strength during the first nine months of 1988, contributed to this deceleration in the growth rate of domestic exports.

Domestic exports to the various major markets showed a mixed performance in 1988. Significant growth was recorded for domestic exports to the United Kingdom (at about 16 per cent in real terms) and Japan (22 per cent). Domestic exports to the Federal Republic of Germany grew by only four per cent. Domestic exports to China, which was Hong Kong's second largest market, grew by about 34 per cent in real terms. This strong growth reflected partly the continued surge in imports by China to satisfy its own demand, and partly the increase in outward processing activities. On the other hand, domestic exports to the United States, which was Hong Kong's largest market, recorded a decline of two per cent in real terms. As a result of the decline in relative importance of the United States as a market, Hong Kong's domestic exports to that country dropped to 33 per cent in 1988, from 37 per cent in 1987 and 42 per cent in 1986. The continuing efforts of local manufacturers and exporters to diversify their markets also contributed to this development.

In terms of the major product categories, domestic exports of clothing increased by about two per cent in real terms in 1988 over 1987, while those of textiles dropped by about four per cent. They still accounted for 31 per cent and seven per cent respectively of the total value of domestic exports in 1988. Domestic exports of radios dropped substantially by about 35 per cent in real terms. However, substantial increases were recorded in domestic exports of electronic components (about 44 per cent in real terms), metal manufactures (20 per cent), and watches and clocks (20 per cent).