Tuesday, August 30, 2005

Hong Kong GDP growth accelarates further

First quarter GDP growth in Hong Kong rose to 6.8% in the second quarter according to the volume measure. Quarterly growth was 3.0% which translates into a annualized 12.6%.

However, adjusted for the deteriorating terms of trade growth was "only" 4.8%. This of course is far higher than in either the United States, the European Union and Japan, especially since their terms of trade is deteriorating too because of the oil price increases. The volume year over year GDP growth of 3.6% in the US is only 3.1% after adjusting for terms of trade.

On the other hand, unlike in the United States where government consumption has increased with 5.9% in nominal terms, only marginally less than the 6.1% GDP growth, the people of Hong Kong are increasingly getting to chose themselves how to spend their money. Nominal GDP increased 5.7% in Hong Kong, yet government consumption fell 4.5%. Government consumption is now only about 9% of GDP in Hong Kong compared to 19% in the United States and 30% (including government "investments") in Sweden. This is good both as an end in itself as it means that the people of Hong Kong are able to spend their own money which will give it a higher utility and also because the lower tax and deficit burden it will allow will improve the competitiveness of the economy.

Adjusted for both terms of trade and government consumption, growth was more like 5.9%, nearly twice the US level (more than twice after adjusting for population growth) and a multiple of European and Japanese levels, illustrating the benefits of laissez faire policies which Hong Kong pursues more consistently than any other country in the world.


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