Tuesday, November 21, 2006

Hong Kong Growth Accelerates Again

According to preliminary numbers, Hong Kong's GDP grew 3.5% from the previous quarter, which by the American way of expressing growth (quarterly change at an annual rate) translates into a 14.8% growth rate. Compared with a year ago, growth was 6.8%, way above the average analyst forecast of 5.5%.

Given how volatile quarter to quarter growth numbers tend to be, one shouldn't perhaps read to much in to the 14.8% number. But the year over year change of 6.8% gives a good picture of just how strong the Hong Kong economy is. Last week, we found out that unemployment had fallen to 4.5% (and unlike in Sweden and many other European countries, this number doesn't mask a massive hidden unemployment in various government schemes), despite the fact that the labor force had expanded by 1.9% from a year ago. Hong Kong's economy is fundamentally very strong, benefiting from its laissez faire oriented economic policies and the boom in neighboring China.

The details of the report is quite encouraging, with fixed investments surging, private consumption growing at a healthy rate, the trade surplus rising while government consumption and inventories is down.

The main danger to Hong Kong's economy lies in the danger of a recession and increased protectionism in America. Not primarily because it would reduce Hong Kong exports to America (which is now only a small part of Hong Kong's foreign trade), but because it would weaken the economy of Hong Kong's main trading partner: mainland China.


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