ENG-2001 — Page 80

CHAPTER 4

The Economy

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THE Hong Kong economy underwent a distinct slowdown over the course of 2001, amidst a worsening external environment prompted by the downturn in the US economy, and with the situation exacerbated by the terrorists attacks in the United States on September 11. In the external sector, total exports of goods still had some growth in the early part of the year. Yet as the global economic slump deepened, exports of goods to all the major markets successively receded. Exports of services fared better in the first half of the year, bolstered by sustained growth in offshore trade and inbound tourism. But with the September 11 incidents hitting severely the travel industry world-wide and the demand for trade-related and other business services in the region, exports of services likewise slowed down towards the year-end. Nevertheless, as imports of both goods and services came down in tandem with the setback in exports of goods and services, the combined visible and invisible trade account still yielded a further sizeable surplus in 2001.

In the domestic sector, consumer spending grew steadily further in the first half of 2001, underpinned by a mild increase in household income on account of the robust economic performance in 2000. However, with the unemployment rate rising markedly since middle of the year and consequential to the shock from the September 11 incidents, consumer spending moderated distinctly in both the third and fourth quarters. Investment spending slowed down abruptly after the first quarter of 2001, as the dim business outlook deterred machinery and equipment intake, and as building and construction activity slackened amidst the subdued property market and the substantial cut-back in public housing production.

Growth in the Gross Domestic Product (GDP) decelerated significantly, from 10.5 per cent in real terms in 2000 to a mere 0.1 per cent in 2001. GDP registered modest increases by 2.2 per cent and 0.8 per cent respectively in real terms in the first two quarters of 2001 over a year earlier, before receding to declines of 0.4 per cent in the third quarter and 1.6 per cent in the fourth quarter. On a seasonally adjusted quarter- to-quarter comparison, GDP fell by 0.5 per cent and 1.4 per cent respectively in real terms in the first two quarters of the year, rebounded slightly by 0.3 per cent in the third quarter, but contracted again by 0.2 per cent in the fourth quarter.

Amidst the economic setback, the labour market eased visibly over the course of 2001. As total employment growth fell behind labour supply growth upon more extensive corporate downsizing and lay-offs, the seasonally adjusted unemployment rate leaped from 4.5 per cent in both the first and second quarters to 5.3 per cent in the third quarter and further to 6.1 per cent in the fourth quarter. The underemployment rate likewise went up distinctly, to 3.0 per cent by the year-end.