Worst may be over for economy
By DUNCAN HUGHES
THE economy undershot last year's growth forecasts but is on course for a robust 1996, the Financial Secretary announced.
Last year's growth plunged to the lowest for five years with the fourth-quarter growth expected to have dipped to about four per cent.
But Mr Tsang claimed the worst could be over and the territory's historically high inflation rate had been brought under control.
He said the property market had stabilised and the territory's high unemployment rate was largely a result of problems with labour mobility rather than economic stagnation.
Mr Tsang, in an upbeat assessment, blamed last year's downturn on the weakest domestic demand for nearly 20 years and the slump in private sector building activity.
The visible trade deficit grew to 10 per cent of the value of imports - well above the average of the past 10 years.
'Our balance of trade has deteriorated principally because we have been investing in the expansion of our production capacity. In due course this will show itself in increased output, a growth in exports and higher gross domestic product,' said Mr Tsang.
Last year inflation, as measured by Consumer Price Index A, the broadest measure of inflation, fell from 10.1 per cent in January to 6.6 per cent at the end of the year.
'The easing of inflation owed a great deal to the way in which the US dollar gained strength in the latter part of the year.
'Also contributing were more stable world commodity prices, as well as a significant moderation in China's inflation. Locally-generated inflationary pressures eased. Specifically, rents, and labour costs moderated, while the prices of consumer goods softened.' Inflation is set to rise by an average of 7.5 per cent in 1996 - down from 8.7 per cent last year and 8.1 per cent in 1994.
Angus Armstrong, economics director of Deutsche Morgan Grenfell, said: 'Last year's growth was surprisingly low as it implies a very steep fourth-quarter fall, something about four per cent.
'Surprisingly, consumer spending is projected to be up about four per cent in real terms during 1996. This implies retail sales will be much higher. Last year it fell by 1.5 per cent in volume terms.
'Overall, it was a generous but responsible budget but with relatively little for business.' Joe Zhang, an economist with WI Carr, said the estimates for this year's growth were conservative.
The brokerage is tipping growth for the year of about 5.5 per cent.
Mr Zhang said: 'We see continued growth in exports and productivity gains during the year.'