ENG-2011 — Page 82

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Chapter 3

The Economy

The Hong Kong economy attained another year of above-trend growth in 2011, although the external environment was increasingly plagued by the Eurozone sovereign debt crisis after the second quarter. With a vibrant domestic sector, the labour market saw full employment through the four quarters. Inflation rose further, driven by higher domestic cost pressure and imported inflation, but stabilised towards the end of the year.

Hong Kong's economy posted another year of above-trend expansion in 2011, despite the contrasting performance of its external and domestic sectors since the second quarter of the year. Merchandise exports weakened as a result of sluggish demand in the major export markets, hit by the euro debt crisis, while the domestic sector performed

performed remarkably

remarkably well on the back of strong consumption and investment. The sustained strength of inbound tourism also rendered support to exports of services.

In 2011, the Gross Domestic Product (GDP) expanded by 5 per cent in real terms, on top of the 7 per cent in 2010. External factors, including the earthquake and tsunami in Japan, the worsening euro debt crisis and the US' unsteady economic recovery slowed Hong Kong economic growth progressively during the year, sliding from 7.6 per cent year-on-year in the first quarter to 3 per cent in the fourth quarter of 2011.

On a seasonally adjusted quarter-to-quarter comparison, real GDP expanded by 3 per cent in the first quarter, but shrank by 0.5 per cent in the second quarter, then grew only mildly by 0.1 per cent in the third quarter, and by 0.4 per cent in the fourth quarter (Chart 1).

Total exports of goods slackened markedly to only a modest growth in real terms in 2011, from the double-digit rebound in 2010. Goods exports slowed notably after the first quarter of 2011 and stayed sluggish through the year-end, due mainly to slackening demand in the advanced markets, notably the US and the EU, while exports to many Asian markets also decelerated.