When big numbers add up to optimism

Chief Executive Donald Tsang Yam-kuen says Hong Kong's economy may have slipped into recession in the third quarter and could face tough times ahead as Europe's debt crisis deepens.

SCMP, Nov. 10

The Hong Kong economy grew by 4.3 per cent in real terms in the third quarter of 2011 over a year earlier.

Gov't announcement, Nov. 11 Well done, Donald. Only two days after you were out there talking doom and gloom your people put out an economic report that says we are still booming. Care for a towel to wipe that egg off your face?

And just what is a head of government doing talking down his own economy in this way? You gave people the impression that you had some advance knowledge of what the third quarter report would show. Clearly you did not. You only showed that you are a pessimist by nature, which is a trait one might look for in a newspaper columnist but not in the chief executive of Hong Kong.

The actual third quarter performance was in many ways even better than that 4.3 per cent growth rate indicated. Take out the contribution from merchandise trade and the year-on-year growth rate was actually 9.85 per cent as the first chart shows.

Nor was it really the much-mooted export slowdown that caused the weaker trade figures. The contribution to gross domestic product from trade is the net of exports over imports and there was a huge surge in imports of retained consumer goods over the last year. This is what made the trade figures a little weaker.

But what this tells us is that Hong Kong people have not been taking Donald's line. They are not tightening their belts. They are saying, 'Let's party.'

The figures on personal consumption expenditure confirm it: growth in real terms of 8.8 per cent in the fourth quarter. This growth was concentrated in consumer durables, in other words not life's necessities but the party goods.

The figures on investment were similarly buoyant, up 10.2 per cent year over year. The property sector was slower, which was long signalled, but Donald seems to have ignored that expenditure on machinery and equipment now accounts for a much bigger share of our fixed capital formation. Private sector expenditure in this area was up 28 per cent.

Even the trade figures showed some good news. Exports of services continue to boom. They were the equivalent of more than half of GDP in the third quarter, up from little more than 20 per cent 12 years ago. It is only merchandise trade that has proved a little weak and this is of ever dwindling importance to our economy. The new Hong Kong economy, the services economy, is doing wonderfully.

The fact is that Donald should not bother himself with Europe quite so much. The big trouble spot there, Greece, has an economy that is only about a quarter larger than Hong Kong's at present. It is not going to bring the world down. And now that Italy has got rid of its 'bunga bunga' joker, it will probably once again assume its usual role as the question mark to the euro, a chronic weak spot, not an acute one.

Europe's economy, taken as a whole, is not actually in such bad shape at all. The problem is the euro, not Europe, and the euro is a problem because it was established without adopting the necessary disciplines that such a currency requires.

But all that Donald has done by troubling himself with these matters is make himself much gloomier about Hong Kong than he needs to be. Turn your eyes back home, Sir, and you'll make yourself feel a lot better.