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The Hong Kong economy continued to expand at a brisk pace in 2006. The
Gross Domestic Product (GDP) leaped by 6.9 per cent in real terms, following a robust
7.5 per cent growth in 2005. After a strong 8.1 per cent expansion in the first
quarter of 2006, the economy moderated to a 5.6 per cent growth in the second
quarter, but soon regained momentum to a 6.8 per cent growth in the third quarter
as trade showed renewed vigour. Growth in the fourth quarter remained well above-trend
at 7.3 per cent. The financial services sector did very well in 2006, so did the
trading and logistics sectors. Hong Kong's economy has become more dynamic and
continued to move up the value chain during the year. On a seasonally adjusted
quarter-to-quarter comparison, real GDP expanded strongly during the year, by
2.0 per cent, 0.9 per cent, 2.6 per cent and 1.5 per cent respectively in the four
quarters.
The robust economic growth attained over the past three years, at an annual
average of 7.7 per cent, together with a moderate inflation rate, is a clear indication
of sound economic fundamentals, thanks to a highly flexible workforce and excellent
entrepreneurship, and also to Hong Kong's pro-market economic policy under the
guiding principle of 'Market leads, Government facilitates'. In December 2006, the
Executive Broad of the International Monetary Fund (IMF) concluded its annual Article
IV Consultation discussions with Hong Kong. The Broad attributed Hong Kong's
sustained economic expansion to its skilful macroeconomic management, flexible
markets and highly developed financial infrastructure.
The external sector put up a robust performance in 2006, both in goods and
services. Boosted by the generally resilient global economy, the Mainland's robust
trade flows and the competitiveness advantage from the weakening of the Hong
Kong dollar along with the US dollar, merchandise exports attained double-digit
growth for the fourth year in a row, a testament to Hong Kong's well-established role
as a trading and logistics hub in the region. Invisible trade was likewise robust, with
exports of services registering another year of solid growth. Exports of merchandising
and other trade-related services, financial and other business services, and
transportation services all performed well, although exports of travel services showed
more moderate growth due to the slower pace of expansion in inbound tourism in
the second half of the year.
The domestic sector was an increasingly steady and important contributor to
Hong Kong's economic growth in 2006. Local consumption demand grew solidly
throughout the year as the labour market continued to show a broad-based
improvement while the asset markets performed equally well to produce a positive
wealth effect. Apart from sanguine economic prospects, consumer sentiment was
generally upbeat more so with reduced uncertainty over interest rates in the latter
part of the year. Overall investment picked up in 2006 for the fourth year in a row.
Investment strength was propelled mainly by a sustained surge in machinery and
equipment acquisition, a clear indication of investor confidence against the backdrop
of a briskly expanding economy, although overall activity in the construction industry
remained slack.
The labour market experienced further extensive improvements in 2006. Total
employment recorded a 2.1 per cent growth in 2006, slightly higher than the 2.0 per
cent increase in 2005. The number of people employed in 2006 was 3.47 million,
representing an all-time high. An additional 299 000 new jobs were created between
the 2003 trough and end-2006, benefiting workers in all age groups and all
occupation categories. In tandem with this growth, the seasonally adjusted
unemployment rate fell to a six-year low of 4.4 per cent.
The overall property market, after a general upturn between mid-2003 and mid-2005, showed a steadier performance in 2006. Probably reflecting greater risk
awareness, most property prices rose at a slower rate amid moderate trading.
Despite this, market sentiment remained positive as the longer-term outlook was well
underpinned by improving economic fundamentals. On the leasing front, rentals kept
moving up extensively in tandem with solid user demand, but increases in residential
flats and shopping space slowed down noticeably after earlier surges.
In the financial market, the local stock market was on an upward trend during
most of 2006, benefiting much from being a platform for overseas investors investing
in the fast-growing Mainland market as well as for Mainland enterprises to raise
capital around the world. Activities involving Initial Public Offerings (IPOs), including
the listing of several prominent Mainland enterprises, attracted much interest. In
terms of funds raised through IPOs, Hong Kong ranked second in the world in 2006,
just after London. The Hang Seng Index broke the 20 000 mark for the first time in
late December 2006 before closing the year at 19 965, 34 per cent higher than at the
end of 2005. The average daily turnover rose to $33.9 billion establishing another
record year. With the stock market capitalisation surpassing $13 trillion at the end of
December 2006, Hong Kong's stock market overtook Toronto's to become the sixth
largest in the world.
Consumer price inflation, although inching up in the first three quarters of 2006,
remained moderate through to the end of 2006. The strong economic upturn,
coupled with the low inflation rate, provided a highly supportive marcroeconomic
environment for Hong Kong. On a year-on-year basis, the increase in the Composite
Consumer Price Index inched up from 1.6 per cent in the first quarter to 2.0 per cent
and 2.3 per cent respectively in the second and third quarters, before edging down
to 2.1 per cent in the fourth quarter following a fall in oil prices and a steadier
increase in housing cost.
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