ENG-2001 — Page 93

THE ECONOMY

2001 over a year earlier. Yet growth decelerated sharply to 1.2 per cent and 3.2 per cent respectively in the second and third quarters, and then weakened markedly further to -6.4 per cent in the fourth quarter.

The distinct weakening in overall investment spending during 2001 was largely attributable to a fall-off in expenditure on machinery and equipment. In the first quarter, there continued to be a robust growth in such expenditure upon the delivery of capital goods ordered earlier. It then slackened markedly thereafter, as the business outlook worsened along with the global economic downturn. The intake of aircraft rendered only a temporary lift in the third quarter. For 2001 as a whole, expenditure on machinery and equipment, whilst still up by 5.2 per cent in real terms, fared distinctly less well than the 25.8 per cent surge in 2000.

As to expenditure on building and construction, there was a further shrinkage in 2001, signifying the fourth consecutive year of decline. The slump was much related to the protracted downturn in the residential property market, causing a dearth of new projects in the private sector. Also relevant was a substantial scaling back in the Public Housing Programme. These more than offset the sustained strong increase in output from the Priority Railway Projects and also the pick-up in output from other government projects. With activity in both the public and the private sectors contracting further, expenditure on building and construction continued to fall, by 2.5 per cent in real terms in 2001, following a 7.7 per cent decline in 2000 (Chart 9).

Chart 9

Main components of domestic demand (year-on-year rate of change in real terms)

20

15

Per cent

Investment expenditure

in terms of gross domestic fixed

capital formation

10

Government

consumption expenditure

5

0

-5

Private consumption expenditure

-10

-15

-20

1991

1992

1993

1994 1995

1996 1997 1998

1999 2000 2001

Local consumer spending maintained a steady growth in the first two quarters of 2001, but slowed down visibly in both the third and fourth quarters, upon a marked rise in unemployment and the shock from the September 11 incidents. Overall investment spending slackened off abruptly after the first quarter of 2001, as the dim business outlook deterred machinery and equipment intake, and as building and construction output stayed weak amidst the subdued property market. Yet government consumption expenditure picked up further.

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