One expects governments to put a favourable gloss on economic data, but that can be dangerous if it leads to overexpectations or covers up reality with statistical footwork that deceives stock- broker analysts but not the man in the street. Hong Kong has just come out with its second quarter gross domestic product figures and forecast that its prediction of 5-6 per cent growth for the year is on target.
It can point to some bright spots, especially for the lower-income groups, with unemployment falling to 3.5 per cent from 4.6 per cent a year ago and median household incomes rising 9.6 per cent over a year earlier, with wages at the lowest end rising 10 per cent. Doubtless a surge in public sector infrastructure spending, however wasteful, has had an impact.
But look further and one must have real concerns about the next six months and even more about the past 10 years. First, the short term: even before the latest problems erupted in the US and Europe and before there was clear evidence of a slowdown in China's growth, Hong Kong statistics were beginning to look problematic. The year-on-year growth looks OK but just look at the quarter-on-quarter figure. On that basis GDP in the second quarter fell, even at current prices and let alone after inflation. Some short-term reasons for the dip exist - the Japanese earthquake, for one. But things look to get worse by comparison with the very strong period a year ago. There are areas of strength remaining, including private consumption. The eventual payout of the HK$6,000 a head from government coffers should also be a boost. But figures already coming out of the likes of Germany and Singapore suggest that the outlook is likely to continue deteriorating for the rest of the year.
Meanwhile, the government's crowing about the recent rise in household income must take account of how illusory Hong Kong's economic growth has been for the majority of people over the past 10 years. This has been partly the result of the statistical wizardry which keeps so-called 'real GDP' growing faster than GDP adjusted by all measures of inflation other than the overall GDP deflator used by the government. Thus, between 2001 and 2010 per capita GDP at current market prices rose by 27 per cent to HK$246,733 but, according to the 'real' figures (so-called 'chained 2009 dollars') used by the government and most unthinking analysts and media, it rose by 40 per cent from HK$174,898 to HK$245,536. That is a huge gap, which may have a satisfactory explanation in terms of the mathematical formulas used but makes no common sense at all.
When prices were falling, the deflator was falling much faster than other price indices such as the Composite Consumer Price Index and, since inflation returned, the deflator has lagged behind the CPI by a large amount - and continues to do so. Miraculous! The divergence makes the government very happy, as it enables it to boast of economic success. But the populace knows better.
The notion of a 40 per cent rise in real incomes over the past decade is clearly a joke which would be instantly derided by 95 per cent of citizens. Even the 27 per cent rise looks vastly exaggerated. Indeed, it is shown to be by other data produced by the government. The CPI rose 12 per cent over the decade to the middle of this year, so even if the GDP per capita was equally distributed the net gain would have been only about 14 per cent over the decade.