ENG-1999 — Page 79

THE ECONOMY

On invisible trade, exports of services likewise staged a significant rebound in 1999. Apart from having a sustained growth in inbound tourism, there was a surge in offshore trading activities upon the distinct turnaround in export performance in the Mainland. Exports of other trade-related and business services also picked up, along with the economic revival in the region. For 1999 as a whole, exports of services went up by 6 per cent in real terms, in contrast to the 7 per cent decline in 1998. Yet imports of services were modest throughout 1999, reflecting the weak domestic demand in the early part of the year as well as fewer trips by Hong Kong residents to Taiwan immediately after the earthquake there in September. For 1999 as a whole, imports of services fell by 1 per cent in real terms, the same as the decrease in 1998. With exports of services surging but imports of services still slack, the invisible trade surplus widened considerably further in 1999, by 11 per cent to $101 billion. This more than offset the deficit on the visible trade account, giving a combined surplus (including an estimate of imports of gold for industrial use) of $54 billion in 1999, corresponding to 3.5 per cent of the total value of imports of goods and services in that year. Both were markedly higher than the corresponding figures of $6 billion and 0.4 per cent in 1998.

Domestic Demand

Local consumer spending remained slack in the early part of 1999. Nevertheless, as overall economic conditions turned better and the employment situation stabilised, there was a visible pick-up in consumer spending in the remainder of the year. The prevalence of price discounts at the retail outlets also helped stimulate demand. Initially, the recovery occurred mainly in consumption of services. It then spread to clothing and footwear, and further to high-value items such as motor vehicles, furniture and various other consumer durables. Private consumption expenditure (PCE), after falling by 4.4 per cent in real terms in the first quarter of 1999 over a year earlier, bounced back to an increase of 1.3 per cent in the second quarter. Growth strengthened to 3.0 per cent in the third quarter and then to 4.5 per cent in the fourth quarter. This gave an increase of 1.1 per cent in real terms in PCE for 1999 as a whole, reversing the decrease of 6.7 per cent in 1998.

Overall investment spending shrank markedly further, by 17.6 per cent in real terms in 1999, following a 6.4 per cent decline in 1998. Within this total, expenditure on machinery and equipment plunged by 19.4 per cent in real terms in 1999, after a 6.6 per cent decline in 1998. Investment spending in this vein was deterred by concern. about the business outlook, particularly in the early part of the year, and also by relatively high real interest cost and credit stringency. Yet as the economy picked up and business outlook turned better, machinery and equipment acquisition by the private sector turned around towards the year-end. Expenditure on building and construction was 10.8 per cent lower in real terms in 1999, following a 4.6 per cent decrease in 1998. Nevertheless, with intensification of work on the priority railway projects and other infrastructural projects, and also with the Public Housing Programme continuing apace, public sector building and construction output revived to a strong growth since the third quarter. On the other hand, with the existing building projects being progressively wound down and new building projects yet to gather momentum, private sector building output was on a distinct decline throughout the year.

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