ENG-2002 — Page 85

THE ECONOMY

terms. For 2002 as a whole, PCE decreased by 1.3 per cent in real terms, reversing the increase of 1.6 per cent in 2001. This was the first annual decline recorded since 1998.

Government consumption expenditure (GCE) reckoned on a national accounts basis rose moderately throughout the four quarters of 2002, by 2.3 per cent, 3.0 per cent, 3.5 per cent and 0.8 per cent respectively in real terms over a year earlier. For 2002 as a whole, GCE went up by 2.4 per cent in real terms, yet considerably slower than the 6.1 per cent increase in 2001. On a seasonally adjusted quarter-to-quarter comparison, GCE had a meagre growth at 0.4 per cent in real terms in the first quarter of 2002. It edged lower by 0.2 per cent in the second quarter, rebounded by 2.3 per cent in the third quarter, but fell back by 1.2 per cent in the fourth quarter.

Overall investment spending, as represented by gross domestic fixed capital formation (GDFCF), remained weak in most of 2002. Continuing the setback towards the end of 2001, GDFCF plummeted by 11.8 per cent in real terms in the first quarter of 2002 over a year earlier. This was followed by lesser declines of 0.2 per cent, 4.3 per cent and 0.7 per cent respectively in the second, third and fourth quarters. For 2002 as a whole, GDFCF fell by 4.3 per cent in real terms, after a 2.7 per cent rise in 2001.

The relapse in overall investment spending in 2002 was mainly due to a sharp fall- off in expenditure on machinery, equipment and computer software, amidst an uncertain business outlook and an overhang of excess capacity. Such expenditure plummeted by 9.1 per cent in real terms for 2002 as a whole, which contrasted with a 6.2 per cent increase in 2001. There were marked declines by 19.8 per cent, 6.7 per cent and 12.2 per cent respectively in real terms in the first three quarters of 2002 over a year earlier, though followed by a rebound to a 3.2 per cent increase in the fourth quarter, helped in part by a low base a year earlier.

On the other hand, expenditure on building and construction, having declined for four consecutive years, turned up to a modest increase of 1.2 per cent in real terms in 2002. This was attributable to increases in such expenditure by 7.6 per cent and 8.2 per cent respectively in the second and the third quarters, which more than offset the decreases in the first and the fourth quarters by 3.2 per cent and 6.2 per cent. Private sector building activity picked up around the middle of the year, yet tapered off in the fourth quarter. Public sector building and construction activity stayed weak for most of 2002, and was on a decline for three years in a row. The MTR Tseung Kwan O Extension was completed in August 2002, while work on the KCR West Rail had been winding down. Output under the Public Housing Programme also continued to shrink (Chart 11).

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