ENG-1997 — Page 81

THE ECONOMY

competitiveness vis-à-vis the neighbouring economies and slackened import demand in some of the major markets abroad.

The substantial currency depreciation in East Asia from the middle of the year did not materially affect Hong Kong's overall export performance in the latter part, as the combined share of the economies concerned in Hong Kong's overall exports was not particularly large. Moreover, the product mix of Hong Kong's exports was more diversified and was not entirely comparable to those of the East Asian economies concerned. The austerity programmes being implemented in most of these economies also constrained their output capacity.

Exports of services however slackened to virtually zero growth, having risen by 6 per cent in 1996. This was mainly attributable to the poor performance of inbound tourism. Affected at least in part by the regional financial turmoil, there were considerably fewer visitors from Japan and other parts of East Asia in the second half of the year. Nevertheless, exports of various professional services such as legal, accounting and advertising services continued to increase. Exports of trade-related services such as transportation services also rose further, as reflected by the strong growth in air cargo flows and the faster increase in seaborne cargo flows, including transshipment flows.

Imports of goods grew by 7 per cent in 1997, faster than the 4 per cent increase in 1996. This was mainly due to a marked revival in retained imports, which was broad- based for both production and consumption purposes. Imports of services also showed accelerated growth, by about 5 per cent in 1997 following a 2 per cent growth in 1996.

Putting the exports and imports together, the visible trade account recorded a deficit of $159 billion in 1997, equivalent to 9.9 per cent of the value of imports. This was nevertheless on a narrowing trend over the course of the year, falling from a peak of 13.3 per cent against the value of imports in the first quarter to 7.5 per cent in the fourth quarter. On the other hand, the invisible trade account continued to register a substantial surplus of around $113 billion in 1997, thereby offsetting a large part of the deficit on the visible trade account.

The labour market was relatively tight during most of 1997. Reflecting this, the unemployment rate fell steadily to a low of 2.2 per cent in the third quarter, before rising to 2.5 per cent in the fourth quarter, as it was at the beginning of the year. The easing in employment conditions towards the end of the year was concentrated mainly in the manufacturing, transport, construction, and consumption and tourist- related sectors. Nevertheless, in the first three quarters of 1997 taken together, earnings in all of the major sectors surveyed showed considerable increases in money terms, and in some sectors, also notably in real terms over a year earlier, reflecting the tighter labour market conditions for most of the year. Wages in most major sectors surveyed also accelerated in growth. However, the increases in earnings and wages could have turned more moderate towards the year end as the labour market tended to ease.

The residential property market consolidated in the second half of 1997, following buoyant trading and sharp escalation in flat prices in the first half. In the third quarter, market activity began to taper, in face of the government's policy commitment to stabilise the market and to increase flat supply substantially in the longer term. The market underwent a distinct downturn from late October as the

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