Hong Kong Economic Outlook
...ve growth by the second quarter of 2002. Exports of services are expected to excel better than exports of goods in 2002, given the fact that on-going structural shift towards offshore trade, and the boost to inbound tourism upon removal of the quota on visitors from the mainland of China. Internally, both consumer and investment spending may remain passive in the short run. Employment The labour market was relatively stable in the first half of 2001 but then severely impacted in the remaining half of the year. Reduced labour demand, consequential to the downturn in economic activity, coupled with a further expansion in labour supply, led to a marked loosening in the manpower resource balance. The seasonally adjusted unemployment rate soared from 4.5 percent in the first quarter of 2001 to 6.2 percent in the fourth quarter. It continued to surge in the first half of 2002, to 7.7 percent and upwards approaching 8.0 percent, according the government officials. The increase in the unemployment rate occurred extensively across almost all the major economic sectors and occupation categories. Total employment had a marked slow-down over the course of 2001, with the yearly growth rate decreasing from 3.1 percent in the first quarter of 2001 to -0.4 percent in the fourth quarter. It then contracted more visibly in the first half of 2002. There were increased incidents of corporate downsizing and lay-offs, and employers had generally adopted an even more cautious attitude towards staffing. On the other hand, the annual growth rate of total labour force, having slowed down from 2.0 percent to 1.4 percent over 2001, then picked up again to 1.7 percent in the first two quarters of 2002. On short-term projection, labour supply is likely to continue to grow, especially during the summer months of the year upon increased entry of fresh graduates and school leavers into the labour market. The effect on unemployment further ahead will depend on the extent to which these new comers can be readily absorbed into jobs, which in turn will hinge on the pace of pick-up in the overall economy giving rise to new labour demand. Restructuring of the economy will tend to impose more on the less educated and lower-skilled workers. Inflation Staring from 1998, the overall consumer prices fell for the third consecutive year in 2001. Despite the rate of decline narrowed in the first seven months, but widened again in the remainder of the year; the major source was the sloppy local demand invoked further decrease in labour wages and property rentals. Import prices continued to ease, due to a general softening in world commodity prices and the relative strength of the US dollar at that time. Furthermore, local retailers continued to offer large price discounts on many items in a move to promote sales and clear off the inventries. For 2001 as a whole, the Composite Consumer Price Index (CPI) went down by 1.6 percent, but this was still smaller than the 3.8 percent fall in year 2000. In 2002, the decline in overall consumer prices magnified in the first half. Yet this was partly due to the influences of some special factors, such as the rates concessions and the waiver of water and sewage charges by the government. For 2002 as a whole, the Composite CPI is expected to decrease by 2.8 percent. Balance of Payments (BoP) The current account registered a further sizeable surplus of HK$91.5 billion (US$11.7 billion) in 2001, equivalent to 7.2 percent of GDP in that year. But concurrently there was a substantial net outflow of financial non-reserve assets in the capital and financial account, totalling HK$40.1 billion (US$5.1 billion) or 3.1 percent of GDP. This was largely attributable to a substantial net portfolio investment outflow, which more than offset the net inflows of direct investment and other investment. Taken together, a notable balance of payments surplus of HK$36.5 billion (US$4.7 billion), equivalent to 2.9 percent of GDP, was recorded in 2001. External Trade Accounts Affected by the sloppy external economic environment, Hong Kongˇ¦s merchandise exports fell by 5.7 percent in 2001. Imports of goods were also shrank by 5.4 percent. As total exports of goods fell somewhat faster than imports of goods, the visible trade deficit shown on the balance of payments has widened slightly in 2001. Fortunately, this was offset by the invisible trade surplus in the same year, thereby yielding a combined surplus of HK$68.5 billion (US$8.8 billion). Notwithstanding a rebound in exports of goods upon firmer regional demand, Hong Kongˇ¦s merchandise exports still fell by 2.1 in the first half of 2002. With import prices also falling and with the subdued domestic demand, imports of goods declined to a greater extent, by 4.5 per cent comparing to the previous year. Blending these together, the visible trade deficit shown on a BoP basis narrowed to HK$28.8 billion (US$3.7 billion) in 2002. Along with an invisible trade surplus reckoned on a BoP basis at HK$69.1 billion (US$8.9 billion) in that period, there was a combined surplus of HK$40.3 billion (US$5.2 billion) in the first half of 2002. Exchange Rate The Hong Kong dollar was generally stable against the US dollar in the first half of 2002. The market exchange rate stayed within a narrow range of 7.7980-7.8000 despite of some occasional shocks. The Nominal Effective Exchange Rate Index was stable at around 106 in the first three months of the period, but gradually weakened to around 102 by end-June 2002 as the US dollar fell against major ...