Stripped-down figures reveal healthy growth
It's time to look at the Hong Kong GDP figures more closely. We've already been told that the economy contracted by 5.2 per cent in the second quarter but the breakdown by components is now available and it tells an interesting story.
To start with, you can pin the contraction down to consumer spending alone. Domestic expenditure on consumer goods in real terms (i.e. adjusted for inflation) fell by 21.4 per cent year over year in the second quarter. Strip only this one element out of the figures and you have an economy that did not contract in the second quarter but rather grew by 0.17 per cent.
There is a notable contrast here with the trend in investment. Fixed capital formation was up 2 per cent in the second quarter and now accounts for 38.5 per cent of GDP, a high figure even by high Asian standards and one that has improved steadily over the last five years while the share of expenditure on consumer goods has declined.
These figures demonstrate very firmly that while consumer confidence may have collapsed, investment confidence has not. This is also a good way to get out of a slump - stop buying goodies, start making and selling them.
Now take it one step further. Another major cause of the second quarter contraction was a 23 per cent decline in net trade in services (banking, insurance, tourism and trade processing income from foreigners less what we pay them for these things).
It was a particularly steep decline because service imports rose while service exports fell.
If a slowdown in business with the mainland were the cause of it we would be in trouble. This is unlikely, however. The mainland economy is not suffering quite so badly, nor have economic links with the mainland weakened like this over the past year. It can safely be put down to the general Asian financial troubles.
Take net trade in services out of the GDP figures along with expenditure on consumer goods and you have an economy that grew by 4.3 per cent in the second quarter.
Make one last alteration. Inventories are down. It always happens in recession and is a good sign of belt-tightening. Take change in inventories out of the figures as well and you have an economy that grew by 8.3 per cent.
But stop, you say. It's cheating to take only the good and ignore the bad.
True, but this form of cheating demonstrates that the government is roughly right in its explanation of the recession we are suffering. Financial turmoil in the rest of Asia has marred consumer confidence and brought down service receipts. Otherwise, we're not doing badly at all.