ENG-2004 — Page 67

Chapter 3

The Economy

The Hong Kong economy entered a full-fledged upturn in 2004, following a rebound in the second half of 2003 after the waning of the negative impacts of Severe Acute Respiratory Syndrome (SARS). The upturn in 2004 was broad- based, marked by thriving exports and offshore trade, vibrant inbound tourism, a strong pick-up in consumer spending, and a visible bounce-back in investment.

Hong Kong's Gross Domestic Product (GDP) expanded by a robust 8.1 per cent in real terms in 2004, distinctly faster than the 3.1 per cent rate in 2003. The performance was the second best since 1987, just after the exceptionally high growth in 2000. On a year-on-year comparison, after increasing by 7.3 per cent in the first quarter of 2004, GDP surged further by 12 per cent in the second quarter against a low base in 2003 due to SARS, and sustained notable growth at 6.6 per cent and 7.1 per cent in the third and fourth quarters. On a seasonally adjusted quarter-to-quarter comparison, GDP expanded throughout the four quarters, by 2.4 per cent, 1.9 per cent, 1.7 per cent and 0.6 per cent respectively in real terms. This once again demonstrated the resilience and strength of our economy.

In the external sector, merchandise exports sustained remarkable growth throughout 2004, boosted by sturdy demand in all major markets including East Asia, the European Union and the US, as well as buoyant external trade and robust domestic demand in the mainland of China (the Mainland). Apart from this, the increasing competitiveness of Mainland products in the world market, coupled with the weakness of the US dollar, rendered a further boost to Hong Kong's exports. On invisible trade, inbound tourism was vibrant. The tourism sector fully recovered from SARS and was back on a full upswing, with the number of incoming visitors hitting successive new monthly highs in the latter part of 2004. While extension of the Individual Visit Scheme boost in the number of Mainland visitors, the number of visitors from most other major sources also rose considerably. Offshore trade also thrived, underpinned strong trade flows in the region.

While external trade was buoyant throughout 2004, the domestic sector also picked up. Local consumer spending maintained notable growth throughout the year, as consumers' willingness to spend was well underpinned by optimism over the

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