ENG-2002 — Page 66

CHAPTER 3

The Economy

After a marked slowdown from 10.2 per cent in 2000 to 0.5 per cent in 2001, the Hong Kong economy staged a moderate rebound by 2.3 per cent in 2002. Growth revived progressively over the course of the year, upon increased impetus from the external sector. But the domestic sector remained weak, with a shrinkage in both consumer spending and overall investment expenditure. Amidst more extensive corporate downsizing and lay-offs, the unemployment rate went distinctly higher, while labour earnings and wages drifted lower in money terms. Overall consumer prices had an enlarged decrease, due in part to slack domestic demand and soft import prices, and in part to the Government's special relief measures implemented during the year.

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THE Hong Kong economy, having slowed down markedly in 2001, showed a progressive revival over the course of 2002. The Gross Domestic Product (GDP) had a 2.3 per cent growth in real terms in 2002, up from a meagre 0.5 per cent growth in 2001. With a generally subdued economic performance carried over from the preceding months, GDP was down by 0.6 per cent in real terms in the first quarter of 2002 over a year earlier. Then, along with reviving external trade, GDP resumed positive growth at 0.8 per cent in the second quarter, followed by distinctly faster growth at 3.4 per cent in the third quarter and 5.1 per cent in the fourth quarter. On a seasonally adjusted quarter-to-quarter comparison, GDP went up through the four quarters of 2002, with increases of 0.3 per cent, 1.1 per cent, 2.0 per cent and 1.7 per cent respectively in real terms.

The impetus to overall economic growth came primarily from the external sector. Total exports of goods reverted from a decline in the first quarter of 2002 to a positive growth in the second quarter, which then accentuated sharply in the third quarter and further in the fourth quarter. Within the total, exports to markets in East Asia, including notably the mainland of China (the Mainland), were particularly robust, attaining double-digit growth across many markets for the year as a whole. Exports to both the United States and the European Union also staged a visible rebound in the latter part of the year. Exports of services fared even better, with a broad-based surge in inbound tourism, offshore trade and transportation services.

On the other hand, the domestic sector put up a relatively weak performance. Consumer spending shrank in 2002, for the first time since 1998. Consumers were generally less willing to spend, in face of the worsened employment and income