ENG-2008 — Page 79

The Economy 39

the third quarter, exports of financial services slowed distinctly in 2008 after the surge in 2007. The vibrant growth in inbound tourism also halted in the final quarter of 2008 as the global economic slowdown weighed on the demand for travel, with a negative spill-over effect on exports of transportation services. While merchanting and other trade-related services (mainly offshore trade) still held up rather well during most of 2008, there was a conspicuous deterioration in the fourth quarter as the flows of goods trade in the Asian region shrank in the final months. of the year.

Domestic demand held up relatively well in the first quarter of 2008, but slowed distinctly in the rest of the year. The deceleration in private consumption was particularly evident in the second half, due to the negative wealth effect arising from the correction in the local asset markets, as well as the deterioration in job prospects. For 2008 as a whole, private consumption expenditure (PCE) only registered a modest growth in real terms, in contrast to the robust growth in 2007. Overall investment contracted marginally in 2008. Investment in machinery, equipment and software recorded some notable growth during most of the year, before showing a distinct decline in the fourth quarter. Expenditure on building and construction decreased in the following three quarters after recording positive growth in the first quarter. The costs of ownership transfer also trended downward as the local property market cooled down in the second half of the year.

The local labour market held broadly stable and firm in the first half of the year while the economy still expanded at an above-trend pace. Yet the rapid deterioration in the business situation following the abrupt escalation of the financial crisis after September 2008 led to weakened demand for labour towards the year-end, with declines in vacancies in such sectors as real estate and construction, tourism and consumption-related sectors, trading and logistics as well as financial services. For 2008 as a whole, total employment grew by an average of 1.6 per cent, slower than the 2.4 per cent increase in 2007. Reflecting the changing economic conditions over the course of the year, the seasonally adjusted unemployment rate, after falling to 3.2 per cent in June-August, the lowest in more than a decade, climbed towards the end of the year as labour demand slackened. Nevertheless, labour wages and earnings, on average, continued to rise in 2008.

The residential property market faltered in the second half of 2008, after a period of much vibrancy in the preceding one and a half years. The much more treacherous environment in the major financial markets overseas, causing jitters in the local stock market, less optimistic job prospects, and less accommodative provision of mortgages, contributed to the consolidation in the local property market. For 2008 as a whole, the number of transactions in residential properties. fell by 22 per cent from their 2007 level. In December 2008, flat prices were around 17 per cent off the peak in June and 11 per cent lower than a year earlier. Rentals were on average 19 per cent off the peak in July and 11 per cent lower than in December 2007. Flat prices in December turned more stable after falling sharply in the preceding two months. It is worth noting that in terms of home purchase affordability and the extent of speculative activities, the situation in 2008 still compared favourably with that in the run-up to 1997.