ENG-1999 — Page 68

CHAPTER 4

The Economy

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THE Hong Kong economy staged a sharp rebound over the course of 1999, recovering robustly from the severe setback brought about by the earlier Asian financial turmoil. The recovery was strongly export-led. Driven by the resurgence in demand in the Asian markets as well as by sustained import absorption in the United States and Europe, exports of goods accelerated to double-digit growth in the latter part of the year. Exports of services likewise picked up markedly during the year, along with a further growth in inbound tourism and a sharp upturn in offshore trading activities. upon the distinct turnaround in exports from the Mainland. In consequence, there was a marked increase in the combined visible and invisible trade surplus over the year.

As overall economic conditions progressively improved and as the employment situation gradually stabilised, local consumer spending resumed positive growth by the second quarter of 1999 and strengthened further in the third and fourth quarters. Yet investment spending on machinery and equipment in the private sector stayed weak, as companies remained cautious in their investment plans amidst a relatively high real interest cost and continued stringency in bank credit. Private sector building activity was still under the influence of the earlier fall-off in building consents consequential to the downturn in the property market. Yet intensification of work under the priority railway projects and the hectic activity under the Public Housing Programme rendered support to overall domestic demand.

The Gross Domestic Product (GDP), though still recording a 3.0 per cent decline in real terms in the first quarter of 1999 over a year earlier, rebounded to a 1.1 per cent rise in the second quarter, and accentuated further to increases of 4.4 per cent in the third quarter and as much as 8.7 per cent in the fourth quarter. For 1999 as a whole, GDP grew by 2.9 per cent in real terms, in stark contrast to the 5.1 per cent decline in 1998. On a seasonally adjusted quarter-to-quarter comparison, GDP already reverted to a 0.6 per cent increase in real terms in the first quarter of 1999, and posted further growth at 2.2 per cent in both the second and third quarters, and 3.4 in the fourth quarter.

per cent

The distinct turnaround in performance owed much to the inherent flexibility and adaptability of the local economy in the wake of the profound shocks to the region. Rentals had come down considerably further in 1999 to ease business cost. Wages and salaries had also been moderating. With the domestic cost/price adjustments proceeding and with import prices also receding in overall terms, the Composite Consumer Price Index fell by 4.0 per cent in 1999.