'Externally, exports of goods surged by 14.8 per cent in real terms in the first quarter of 2004 over a year earlier, on the back of brisk global and regional demand. Enhanced competitiveness from the weakness of the US dollar in the early part of the year also contributed,' the government said in its First Quarter Economic Report 2004.

It said that exports of services had enjoyed a further growth of 13.7 per cent in real terms in the first quarter over a year earlier, underpinned by 'thriving offshore trade and further growth in in-bound tourism'.

Improved employment conditions and a reviving property market, helped boost consumption which was accelerated to a five per cent growth in real terms in the first quarter over a year earlier. This was the fastest quarterly growth in 3.5 years.

'Overall investment spending leaped by 5.8 per cent in real terms in the first quarter of 2004 over a year earlier, as the acquisition of machinery and equipment surged amidst an improved business situation. But overall building and construction output was still weak,' the government said.

The report also noted that there was an increase in demand for labour in the service sectors. By the first quarter of 2004, total employment had gone up by 1.9 per cent from the trough in the third quarter of 2003.

But the report sounded a note of caution in its outlook for the rest of the year. 'On the outlook for 2004, compared with two months ago, there are apparently more concerns about the latest external environment.

'More prominently, there are talks about a more imminent increase in US interest rates; the recent hike in international crude oil prices; and the stepping up of economic tightening measures though largely sectoral in the mainland. But these external factors were not expected to affect Hong Kong's growth prospects. 'Even though sentiment in the global and regional economy may have turned more cautious lately, the general tone for the year as a whole is still very positive,' it added.