ENG-2020 — Page 66

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The Economy

Total exports of goods picked up over the course of 2020 but still fell mildly for the year as a whole. The fall in the first half of the year, amid significant disruptions to the regional supply chains and plunging global demand, was followed by a visible revival in the second half alongside the recovery of the global economy. Exports of services posted a record annual decline, dragged down by frozen inbound tourism from February and generally weak cross- boundary transport and business services.

Domestic demand was badly hit in 2020. Private consumption expenditure recorded the steepest ever annual decline, as local consumption activities were severely disrupted by the COVID-19 epidemic, job and income conditions worsened and outbound tourism virtually ground to a halt. Overall investment expenditure declined noticeably amid an austere business environment and weak construction activity.

The labour market deteriorated sharply in 2020 as the economy experienced the most severe contraction on record due to the COVID-19 pandemic. The seasonally adjusted unemployment rate surged to 6.6 per cent in the fourth quarter, the highest in 16 years. The underemployment rate also soared, to a post-SARS high of 3.8 per cent in the third quarter and stayed elevated at 3.4 per cent in the fourth quarter. For 2020 as a whole, the unemployment rate and underemployment rate averaged 5.8 per cent and 3.3 per cent respectively, 2.9 and 2.2 percentage points respectively higher than in 2019. Labour market conditions in all major sectors deteriorated. Overall wages and labour earnings continued to increase in nominal terms in 2020, but at a decelerated pace. Median household income fell markedly in 2020.

The residential property market was broadly steady in 2020, notwithstanding some moderate fluctuations in individual months. While the COVID-19 pandemic took a heavy toll on the overall economy and market sentiment was swayed by the local epidemic situation from time to time, the market was supported by the low local interest rate environment resulting from massive monetary stimulus around the world and firm end-user demand.

The local stock market exhibited considerable volatility in 2020, as market sentiment was swayed by concerns over the global economic outlook amid the COVID-19 pandemic and the development of China-US relations. The Hang Seng Index closed the year at 27,231 points, 3.4 per cent lower than end-2019.

Overall price pressures receded visibly. Underlying consumer price inflation eased from an average of 3.0 per cent in 2019 to 1.3 per cent in 2020, as price pressures on most goods and services eased amid austere global and local economic conditions. The moderated year-on-year increase in prices of basic foodstuffs in the second half of the year against a high base of comparison also contributed.

Structure and Development of the Economy

Hong Kong is a global centre for world trade, finance, transportation and business, located strategically at the doorstep of the Mainland's huge and vibrant economy. Hong Kong was the world's sixth largest merchandise trading entity in 2020 according to the World Trade Organisation, and was home to one of the world's busiest airports in terms of the volume of

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