Economic activity moderated in 1995 and in early 1996 mainly as a consequence of export weakness and poor domestic demand. The rebound in growth has been driven mainly by robust fixed investment growth. Machinery and equipment spending has been particularly strong, while construction spending increased for the first time in over a year.
Surveys continue to indicate that consumer confidence is gradually improving.
Retail sales have increased and the expectation is that the consumer will make a greater contribution to growth in 1997. An expected increase in property values and falling unemployment should have a beneficial impact on consumer confidence this year. Consumer uncertainty in relation to the handover to China in July is also considered to have almost dissipated. The fragility of consumer activity, particularly in the first half of the year, moderating prices in the important Chinese market along with monetary policy developments and the rigorous currency peg, contained inflationary pressures last year. The 1995 deficit was the first in 12 years and was largely due to a diversion of funds into infrastructural spending.