Re-exports disguise Hong Kong's gloomy outlook
Mainland companies sell goods at near cost to local affiliates and then re-export them at marked up prices
Gosh, everyone's gone gloomy all of a sudden. On Friday the Hong Kong government announced that the city's economic output fell by 0.1 per cent in the second quarter of the year, compared with the first three months (see the first chart).
In response, the government promptly cut its growth forecast for the whole of 2012 to a measly 1 to 2 per cent, down from its previous forecast of between 1 and 3 per cent growth.
Compared with last year's 5 per cent growth rate, that's quite a slow-down. And with global trade weak thanks to the euro-zone crisis, and China's economy slowing, private sector analysts were quick to warn that things are only going to get worse over the coming months.
Don't lose any sleep, however. All this pessimism is being laid on a bit too thick.
Part of the reason the second quarter looked so weak was because the preliminary numbers for the first three months of the year were revised upwards after new data showed a stronger performance in the services sector than initially thought. A similar revision is equally likely for the second quarter when more detailed figures come in.
But the main reason we don't have to worry too much is that the sector now experiencing the deepest slump has nothing to do with Hong Kong's real economy.