ENG-2005 — Page 68

42 The Economy

A more balanced pattern of growth was another distinct feature in the economic recovery, with both external demand and the domestic sector contributing to economic growth. Local consumer spending grew solidly during the year, indicating stronger consumer sentiment prompted by a rebound in employment and labour income, as well as the generally positive economic and employment prospects.

Overall investment improved over the course of 2005, particularly in machinery and equipment acquisition, supported by the continued brisk pace of business expansion and strengthened investor confidence. In contrast, building and construction activity remained slack all through the year mainly due to the fact that public housing programme had been scaled down earlier and also that there were relatively few large-scale infrastructure projects and private sector building projects in progress.

A third salient feature in the recovery was that it translated into a broad-based improvement in the labour market. Total employment expanded by a substantial 2.3 per cent in 2005. By the fourth quarter, the total number of people employed reached an all-time high of 3.43 million with more than 240 000 additional new jobs created since the trough in 2003, benefiting both higher and lower skilled workers across different sectors. Job vacancies likewise surged across major sectors. Along with a steadily improving labour demand, the seasonally adjusted unemployment rate fell successively, reaching a four-year low of 5.3 per cent in the fourth quarter of 2005. The number of long-term unemployed also fell noticeably and labour income rebounded moderately in money terms, reversing the decline in the previous years. While the current economic upswing created a number of higher-paid jobs, it also helped raise the average earnings of lower-income workers. The marked improvement in labour market conditions was boosted not only by the economic upturn but also a resilient and flexible workforce which, over the past decade, has become much better educated.

The property market as a whole continued to fare well along with the continuing economic upturn in the first half of 2005 but turned much quieter after interest rate increases accelerated in the second half. The adjustment was more apparent for residential property, with flat prices and transaction volume both easing off from their heights earlier in the year. Non-residential properties, however, were not affected to the same degree because of solid demand by investors. Meanwhile, the leasing market improved progressively because of a strengthening demand for rented properties. Rents moved up across the board with a sharper increase for office space during the course of 2005.

Consumer price inflation rose gradually over the course of 2005 in part because of the economic upturn but also because of the progressive effects of the rent rebound and higher oil prices. On a year-on-year basis, the Composite Consumer Price Index rose modestly by 0.4 per cent in the first quarter and 0.8 per cent in the second, and then accelerated to increases of 1.4 per cent in the third quarter and 1.8 per cent in the fourth.

Two factors kept consumer price inflation benign in spite of the strong economic growth the comparatively moderate increases in unit rental cost and the stable