Trade anomaly turns out the great GDP leap that wasn't
The Hong Kong economy sustained strong momentum in the first quarter of 2011, with real GDP leaping by 7.2% over a year earlier.
Government news release, May 13
Leaping, jumping, soaring, bounding, just no holding it back. I was out of town when the first-quarter numbers on gross domestic product came out, but a quick review of them showed soon enough that some of this leaping wasn't quite high enough to clear the hurdles.
Try a growth rate for domestic demand of not 7.2 per cent but only 0.5 per cent and even this figure kept in positive territory only by massive government pumping of infrastructure projects. It was an anomaly in trade figures that produced the 7.2 per cent. The rest of the economy staggered in the first quarter from a private sector reluctance to invest money.
The first chart tells you some of the story. Private sector construction activity slumped to only HK$17.9 billion, far below a quarterly peak of HK$46 billion in 1997 and no higher than it was 32 years ago, although the rest of the economy has grown almost sixfold over that period.
Public sector construction spending, however, is more than double its levels of three years ago, which might be cheering news if it didn't mostly consist of pricey transport projects from nowhere to nowhere, wanted by no one and started only because the Law of Concrete (Basic Law Article 161) requires that we pour four million tonnes a year.
Much the same trend showed up in spending on machinery and equipment. There was some buoyancy in the public sector but the much larger private sector investment was down 13.8 per cent year over year.
'...usually rather volatile,' sniffed the official government statement in dismissing this and then added: 'Nevertheless, local business confidence remained sanguine during the first quarter.'
A rather unusual choice of word there, 'sanguine'. It comes from the ancient Greek medical theory of humours, it means cheerful and its opposite is 'melancholic', which leaves me to wonder what a melancholic plunge in investment might be if a cheerful one is 13.8 per cent.
And now to the trade anomaly that turned a crawling domestic demand into a leaping GDP.
You will notice from the second chart that it has been 20 years since we last posted a quarterly surplus in merchandise trade.
Things went particularly pear-shaped in the first quarter last year when this deficit was HK$83.7 billion. How nice then to see that exactly one year later the deficit was less bad by HK$15 billion. In GDP accounting this is called 'growth'.
How nice also that we are calculating all this on the basis of inflation-adjusted GDP numbers. It turns out that there has been more inflation in import prices than there has been in export prices, which we would normally call a deterioration in terms of trade.
It is convenient for us here, however, as our less bad 'growth' number would only be HK$3.3 billion if we had not pretended that we could pin down inflation to several decimal places across the entire universe of merchandise exports and imports. They call this accounting. Three cheers for accounting.