ENG-2013 — Page 61

Chapter 3

The Economy

The Hong Kong economy expanded moderately in 2013, improving from the weak performance in 2012. While the solid expansion in domestic demand and exports of services provided the key growth momentum and helped keep the economy in full employment, lacklustre demand in advanced economies continued to drag on Hong Kong's merchandise exports. Inflation was largely contained in 2013, thanks to subdued import prices and receding domestic cost pressures.

The Hong Kong economy picked up to register a moderate growth in 2013 after expanding only slowly in 2012, despite the still challenging external environment amid the sub-par performance of the advanced economies and the negative spillovers to the emerging market economies. Of particular note was the acceleration of exports of services on the back of vibrant inbound tourism and faster growth of cross-border financial activities. Domestic demand displayed resilience, with both consumption and investment registering further growth.

In 2013, the Gross Domestic Product (GDP) expanded by 2.9 per cent in real terms, improving from the 1.5 per cent growth in 2012, but still below the annual average growth of 4.5 per cent in the past decade. In terms of the quarterly profile, real GDP growth hovered at around 3 per cent throughout the four quarters, at 2.9 per cent, 3.1 per cent, 2.8 per cent and 3 per cent respectively.

On a seasonally adjusted quarter-to-quarter comparison, real GDP growth picked up successively during the year, at 0.5 per cent, 0.6 per cent, 0.7 per cent and 1.1 per cent respectively in the first, second, third and fourth quarters (Chart 1).

Total exports of goods grew only modestly during most of 2013, mainly reflecting the still unsteady demand conditions in the advanced economies, slower expansion in emerging markets amid concerns about the US Federal Reserve's asset purchase tapering, and their adverse impacts on intra-regional trade in Asia. Nevertheless, merchandise exports showed some relative improvements in the latter part of the year as the advanced economies gained more traction.

Exports of services attained solid growth in 2013. Exports of travel services, buttressed by the brisk expansion of inbound tourism, accelerated and rendered the key impetus, while exports of financial and other business services also picked up amid the faster expansion of cross-

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