HONG KONG MONETARY AUTHORITY Annual Report 1996
HONG KONG MONETARY AUTHORITY
ECONOMIC AND BANKING ENVIRONMENT
Economic growth recovered gradually in 1996, after a consolidation in the previous year. Private consumption improved and asset prices rose sharply. However, exports were generally weak. Inflation fell in 1996 to its lowest point since 1987. The outlook for 1997 is for buoyant growth in both domestic demand and external trade. On the monetary side, the stability of the exchange rate of the Hong Kong dollar will continue to be underpinned by a robust monetary management system, strong foreign currency reserves and sound economic fundamentals, including notably the strong fiscal discipline. The banking sector will continue to register stable growth in the face of various challenges such as increasing competition and rapid technological advancement.
ECONOMY IN REVIEW
The Hong Kong economy recovered gradually in 1996, after a brief consolidation in 1995. Most of the domestic sectors which were weak in 1995 resumed solid growth in the year passed. As a result, real GDP growth accelerated from 4% in the first half of 1996, to 5.4% in the second half. However, the rebound of the economy was restrained by weak export growth. For 1996 as a whole, real GDP is estimated to have expanded by 4.7%, the same as in 1995 and broadly in line with the medium-term trend growth of 5% (Table 1).
Consumer price inflation eased notably during 1996, as the CPI(A) slowed to 6% from 8.7% in the previous year. Domestically, a more balanced labour market helped soften wage pressure, while the earlier softening of rents also contributed to a lower inflation environment. Externally, a strengthened US dollar and moderating inflation in Hong Kong's trading partners helped restrain imported inflation.
Asset prices, on the other hand, rose significantly in 1996 with renewed growth and stronger confidence. Along with the buoyant US stock market, local equity prices were up 34% during the year, while residential property prices staged a 35% rebound from their trough in October 1995.
| Table 1: | |||
| CONTRIBUTIONS TO GDP GROWTH BY COMPONENTS (%) | |||
| 1995 | 1996P | 1997F | |
|---|---|---|---|
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| Private Consumption Expenditure | 0.5 | 2.6 | 3.2 |
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| Government Consumption Expenditure | 0.3 | 0.4 | 0.4 |
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| Gross Domestic Fixed Capital Formation | 2.9 | 3.5 | 2.5 |
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| Change in Inventories | 3.2 | -3.3 | 0.0 |
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| Net Domestic Exports of Goods | -6.9 | -1.5 | -4.2 |
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| Net Re-exports of Goods | 2.7 | 1.7 | 2.3 |
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| Net Exports of Services | 1.9 | 1.4 | 1.2 |
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| GDP | 4.7 | 4.7 | 5.5 |
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| Note : | P: preliminary estimates F: Government Budget forecasts |