ENG-2003 — Page 71

CHAPTER 3

The Economy

In 2003, the Hong Kong economy grew by 3.3 per cent, faster than the 2.3 per cent growth in 2002. This was notwithstanding a severe setback in the second quarter upon the impact of SARS. Growth impetus came mainly from a sustained strong expansion in export trade throughout the year, yet a distinct revival in domestic demand during the second half of the year also contributed. The labour market continued to be slack in overall terms, but showed a notable improvement in the latter part of the year. Consumer prices drifted lower for the fifth consecutive year, albeit with a markedly narrowed decrease towards the year-end.

THE Hong Kong economy began the year on a strong note, with the Gross Domestic Product (GDP) increasing by 4.5 per cent in real terms in the first quarter over a year earlier. Growth in the second quarter was abruptly derailed by the spread of Severe Acute Respiratory Syndrome (SARS), with GDP relapsing to a 0.5 per cent decline. Nevertheless, economic activity soon staged a broad-based recovery in the third quarter after the waning of SARS, and the upswing was sustained well into the fourth quarter upon a further lift in local sentiment. Reflecting this, GDP bounced up strongly to 4.0 per cent and 5.0 per cent growth respectively in these two quarters. Thus, even with the severe setback caused by SARS earlier in the year, the Hong Kong economy still attained an appreciable growth of 3.3 per cent in real terms for 2003 as a whole, which compared favourably with that of 2.3 per cent in 2002. On a seasonally adjusted quarter-to-quarter comparison, GDP shrank by 0.5 per cent and 2.6 per cent respectively in real terms in the first and second quarters of 2003, but reverted to increases by 6.6 per cent in the third quarter and 1.5 per cent in the fourth quarter. In the external sector, inbound tourism and the travel-related sectors suffered a drastic downturn in the second quarter of 2003 upon the impact of SARS, but regained strength swiftly in the third quarter and advanced further in the fourth quarter. `The remarkable turnaround was backed by a strong rebound in visitor arrivals from the Mainland, especially after the launch of the Individual Visit Scheme in late July. As to merchandise exports and offshore trade, they both displayed highly robust growth throughout 2003, bolstered by continued strong expansion in the Mainland economy, a visible revival in the global economy, as well as a surge in intra- regional trade. Enhanced competitiveness of Hong Kong's exports, backed by a distinct weakening in the US dollar and further domestic cost adjustments, as well as deriving from increasing competitiveness of Mainland products in the world market, rendered an additional boost to the export growth.

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