ENG-2005 — Page 67

Chapter 3

The Economy

The Hong Kong economy recorded another year of spectacular performance in 2005. The two years 2004 and 2005 together saw the fastest pace of economic growth in any two consecutive years since 1988. The robust economic expansion continued to be broad-based, with contributions coming from both external and domestic demand.

The robust performance of Hong Kong's economy continued in 2005. The Gross Domestic Product (GDP) rose by an impressive 7.3 per cent in real terms, after a strong 8.6 per cent growth in 2004. After expanding by 6 per cent year on year in the first quarter of 2005, real GDP grew at 7.2 per cent in the second quarter and 8.2 per cent in the third. Economic growth remained well above trend at 7.5 per cent in the fourth quarter, thanks to very strong trade growth, and despite the dampening impact of higher interest rates. On a seasonally adjusted quarter-to-quarter comparison, real GDP expanded briskly in the first three quarters, by 1.6 per cent, 2.8 per cent and 2.2 per cent respectively in real terms before settling to 0.6 per cent growth in the fourth quarter.

The continued strong growth in external trade, both in goods and services, was an important factor in the economic recovery. Merchandise exports sustained double- digit growth during most of the year, supported by the strong performance of the global economy, the Mainland's vibrant trade flows and the increasing penetration of Mainland products in the world market. Of particular note was the double-digit growth in domestic exports in the second half of the year. The strong domestic export performance was attributable not only to a notable recovery in the clothing trade, but also to the remarkable growth in many non-clothing exports. As for invisible trade, inbound tourism continued to expand briskly in 2005 on top of the robust performance in 2004. The number of incoming visitors reached a record high of more than 23 million which underscored the further expansion of exports of travel-related services. Meanwhile, the Mainland's vibrant trade flows further boosted exports of trade-related services, notably offshore trade and, to a certain extent, exports of transport services. Also, exports of finance, business and other services grew in tandem with the upturn in business activities and an active financial market.

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