ENG-1996 — Page 94

THE ECONOMY

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cent and 3 per cent, respectively. These six markets together accounted for 75 per cent of Hong Kong's total domestic exports in 1996. Meanwhile, domestic exports to many other economies in the Asia-Pacific region and the European Union also moderated in 1996, compared with 1995.

Imports showed a modest increase of 3 per cent in value terms in 1996. Discounting the drop in import prices, there was an increase of 4 per cent in real terms. This was much slower than the 14 per cent increase in 1995. Apart from the marked deceleration in re-export growth, the significant slackening in retained imports also contributed. The latter fell by 2 per cent in real terms in 1996, contrasting with the large increase of 13 per cent in 1995. The moderation in retained imports in 1996 reflected mainly an adjustment to the large inventory build-up in 1995. Analysed by major supplier, China remained the largest source of Hong Kong's imports, followed by Japan, Taiwan, the USA, Singapore and the Republic of Korea.

The visible trade deficit narrowed to $137.7 billion, equivalent to 9 per cent of the total value of imports in 1996. The corresponding figures in 1995 were $147 billion and 9.9 per cent. This result was helped by a gradual improvement in the terms of trade as import prices eased, while export prices remained generally stable. A slower intake of raw materials and semi-manufactures, consumer goods and capital goods following the substantial inventory build-up in 1995 also contributed.

Domestic Demand

Local consumer spending revived steadily during the year. Of particular note was the resurrected buying interest in luxurious or durable items such as cars and home appliances. Total retail sales rose by 3 per cent in volume terms in the third quarter of 1996 over a year earlier, led by 12.1 per cent growth in the sales of consumer durables. This followed growth rates of 0.1 per cent, 0.7 per cent and 2.5 per cent, respectively, in the first, second and third quarters. Private consumption expenditure recorded a growth of 4.4 per cent in real terms in 1996. Government consumption expenditure rose by 4.6 per cent in real terms in 1996 on a national accounts basis. The growth in overall investment spending was generally sustained in 1996. Activities related to the major infrastructural projects, particularly those under the Airport Core Programme (ACP), remained intensive. However, growth should have tapered as the ACP reached its peak. The Public Housing Programme maintained its momentum. Also, the revival in the residential property market should have led to increased private sector building output. Meanwhile, the on-going process of automation, mechanisation and office computerisation continued to support growth in spending on machinery and equipment.

The Labour Market

The labour market improved during the year. In the fourth quarter of 1996, the seasonally adjusted unemployment rate and the underemployment rate stood at 2.6 per cent and 1.6 per cent respectively, compared with 3.5 per cent and 2.3 per cent in the same quarter in 1995. The improvement was underpinned by a faster growth of total employment than total labour supply. In 1996, total labour supply rose by 3.1 per cent, while total employment rose by 3.5 per cent. The increased demand for labour in recent quarters was rather broad-based, with employment in most of the major service sectors picking up to various extent, and with employment in construction also strengthening markedly. But employment in the local manu-