ENG-1992 — Page 59

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THE ECONOMY

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THE growth momentum of the Hong Kong economy was strengthened further in 1992. While the marked increase in re-exports continued to provide the main impetus to growth, domestic exports remained virtually static. Domestic demand was robust throughout the year. The renewal of China's Most Favoured Nation status in the United States for another year and the satisfactory resolution of the market access negotiations between China and the United States under Section 301 of the US Trade Act boosted business confidence. However, the protracted negotiations with China on the financing arrange- ments for the new airport and related projects gave rise to some uncertainty. Political differences over the proposals on constitutional development also aroused concern in the business community.

In the external sector, domestic exports, after showing virtually no change in the first quarter, picked up slightly during the second and third quarters. However, the performance slackened again in the fourth quarter. Re-exports continued to show a strong increase. Many of these re-exports were products of outward processing arrangements made between Hong Kong companies and manufacturing entities in China. In the domestic sector, both consumption and investment expenditures were buoyant. Reflecting these developments, the gross domestic product (GDP) grew by 5.0 per cent in 1992, with increases of 4.9 per cent in the first half and 5.1 per cent in the second half. The corresponding growth rate in 1991 was 4.2 per cent.

After a temporary easing in the early part of the year, the labour market tightened up again in the subsequent months as economic activity continued to grow steadily. The seasonally adjusted unemployment rate was 2.4 per cent in the first half of 1992, while in the second half it was 2.0 per cent. Labour resources continued to shift from manufacturing to services, reflecting the on-going structural transformation of Hong Kong into a more service-orientated economy. Average earnings in all major sectors showed significant increases in money terms in 1992, with appreciable gains after discounting inflation.

Consumer price inflation was generally on a moderating trend in 1992. The inflationary pressures remained mainly generated domestically rather than imported. The rate of increase in the Consumer Price Index (A) for the year as a whole was 9.4 per cent, comprising 9.6 per cent in the first half and 9.2 per cent in the second half. The corresponding increase in 1991 was 12 per cent.

Statistical data are given at Appendices 7-11.