ENG-2011 — Page 94

58 The Economy

The global trading environment was rather robust in the early part of 2011, with the emerging economies across continents growing strongly. However, the situation deteriorated markedly since the second quarter of the year. The 9-magnitude Japan Earthquake on March 11, 2011 caused serious, albeit temporary, disruptions to the global supply chains and hence international trade flows. The encouraging signs displayed by the US and EU economies early in the year also proved to be short-lived, as many of them lost steam amid their weak fundamentals as well as the need for fiscal consolidation. Asia was hardly unscathed. The setbacks in the advanced economies led to region-wide deceleration in industrial activities. and intra-regional trade flows towards the latter part of the year.

Against this background, Hong Kong's exports to the US and the EU showed renewed weaknesses in 2011, especially in the second half of the year. Private demand in the US was constrained by the depressed housing market, on-going deleveraging and persistently high unemployment, resulting in sharp year-on-year declines in exports to the US during most of 2011. Exports to the EU also reverted to decline in the second quarter and worsened notably in the second half of the year, alongside the deepening eurozone sovereign debt crisis. With the spillover effect of waning final demand in these markets increasingly felt across Asia, Hong Kong's merchandise exports to some Asian markets, including India, Korea and Singapore, slowed visibly in the second half of 2011, mainly dragged by exports of raw materials to the Mainland and other parts of Asia. Exports of consumer goods to Asia held up relatively better, however, though also with some moderation in the second half of the year.

Imports of goods recorded a moderate growth of 5.1 per cent in volume terms in 2011, following an 18.6 per cent increase in the previous year, largely due to the sharp slowdown in re-export trade. Retained imports, which accounted for over one-quarter of total imports, nevertheless leaped by 9.2 per cent in volume terms in 2011, further to the 19.7 per cent growth in 2010. The sharp contrast between the lacklustre external demand and the strong domestic demand led to a notable divergence among import intakes of different end-use categories.

In particular, retained imports of consumer goods maintained strong growth throughout 2011, up 24.2 per cent in volume terms for the year as a whole, reflecting buoyant local consumption and tourist spending. Retained imports of capital goods also grew notably by 15 per cent on the back of a resilient domestic economy. Retained imports of foodstuffs recorded a mild growth of 1.9 per cent for the year as a whole. On the other hand, retained imports of raw materials declined sharply by 8.5 per cent, conceivably dragged by dimmer export outlook. Retained imports of fuels also went down by 11.1 per cent after the sharp surge in 2010.

Exports of services made a 6.3 per cent growth in real terms for 2011 as a whole, markedly slower than the 14.6 per cent increase in 2010. With trade-related and transportation services significantly curtailed

curtailed by the worsening global environment and slowdown in merchandise trade flows, the pace of growth in exports of services tapered over the course of the year, from a strong 9.1 per cent year-on-year growth in the first quarter to only a moderate expansion of 4 per cent