The Hong Kong economy grew above trend for the third consecutive year in 2006. Real GDP increased by 6.8% following remarkable growth of 7.5% in 2005 and 8.6% in 2004. Consumer spending and business equipment investment set the trend, while exports of goods and services put in solid performances (Table 1). Consumer price inflation picked up with the higher domestic demand and higher housing rents, although inflationary pressures were contained. Unemployment fell to its lowest point in six years.

Monetary conditions eased during the year with interest rates declining at both the wholesale and retail levels, reflecting abundant liquidity in the banking sector. Broad money and domestic credit picked up along with the increased economic activity. The loan-to-deposit ratio declined to a record low towards the end of the year.