Hold your cheer, as our growth rate sits on a one-legged stool

PUBLISHED : Wednesday, 07 September, 2005, 12:00am
UPDATED : Wednesday, 07 September, 2005, 12:00am

I WAS AWAY on a holiday in Europe when the latest economic growth rate was announced (lovely weather, thank you, too bad about what you got) but, although this review of the figures is belated, I think there are still some features worth pointing out.

Our economic performance may be driven by the mainland's and, to some extent, by trends in the United States because of our currency link to the US dollar, but the closest match to it is what is happening in other smaller Asian economies.

The first chart shows you how close that match is. The red line represents the year-on-year growth rate of Hong Kong's gross domestic product and the blue line represents the weighted average growth of seven other smaller Asian economies - South Korea, Taiwan, the Philippines, Thailand, Malaysia, Singapore and Indonesia.

What these others did in growth rates of recent years is what we did - down with the Asian financial crisis in 1997-98, up with the internet bubble of 1999, down with its collapse, up in a brief recovery afterwards, down with the Sars epidemic and up again in a rebound from it. Is our latest figure up from the previous one? It is also the story in smaller Asian economies. You will not find this lock-step relationship with Hong Kong in the mainland's economic growth nor in Japan's, and certainly not in that of the US.

Obviously, it is not the economies of smaller Asian countries that drive Hong Kong's economy, but we clearly march to the same drummer and this is worth noting when we talk about how we sustain our economic performance. When looking for a clue to our prospects, spare a glance for the prospects of our smaller neighbours.

It does not hold true for everything in our economy, however. In one key measure, we are distinctly different. Our growth is much more narrowly based than that of our regional neighbours.

The second chart gives you the clue here. Our growth is all in foreign trade at the moment. Take the straight headline number and, as the red line in the chart shows, our economy grew 6.8 per cent in the second quarter over the same quarter last year.

Take out of these figures the contribution from trade (the net figure of exports of goods and services over imports of the same) and our second-quarter GDP growth rate, shown in the green line, was a minus 1.04 per cent. It has also been negative this way for the past three quarters.

Private consumption expenditure, for instance, grew only 2.6 per cent, fixed capital formation only 3.5 per cent and government consumption expenditure fell 2.3 per cent, while change in inventories was negative. I know that the government economist will be unhappy with my representing the numbers this way. He will say that you cannot just chop out whatever bit of GDP you do not wish to include and that I misrepresent domestic demand. He is probably right, but I am doing it anyway because it shows you that we are still sitting on a one-legged stool in our growth rate.

And it is not one on which our neighbours in my sample sit. Their growth rate on a weighted average basis may have been less than ours in the second quarter at only 3.9 per cent, but take foreign trade out of their economic figures and you actually get a higher growth rate of 4.3 per cent. They are showing a more broadly based recovery.

It is of particular concern to us at the moment because the growth of foreign trade is slowing down everywhere across Asia just now. Let that trend continue and it may leave our economy exposed.

Hong Kong may be a trading centre, but its economy does not rely on trade alone. Until we see the other components of GDP rise more strongly, we ought not cheer too much about a 6.8 per cent economic growth rate.