Your Guide to Hong Kong's Economic Health Check!

Hey everyone! Welcome to one of the most practical topics in Economics. Ever wonder what the news means when it says "Hong Kong's economy grew by 2%" or "inflation is on the rise"? This chapter is all about decoding that language. We're going to be economic detectives, learning how to read the clues—the data—that tell us about the health of Hong Kong's economy.

We'll look at three key clues:

  1. National Income: How much stuff is our city producing? Is it growing?
  2. General Price Level: Are things getting more expensive? How quickly?
  3. Unemployment: How easy or hard is it for people to find jobs?

Don't worry if looking at charts and numbers seems a bit daunting. We'll break it down step-by-step. By the end, you'll be able to look at economic data and understand the story it's telling. Let's get started!


Section 1: Trends in National Income (GDP)

Think of a country's national income, usually measured by Gross Domestic Product (GDP), as its annual report card. It tells us the total value of all final goods and services produced in Hong Kong in a year. When we look at "trends", we're mainly interested in the real GDP growth rate.

Quick Review: What's Real GDP Growth?

GDP: The total market value of all final goods and services produced within a region in a given period.
Real GDP: GDP adjusted for inflation. It tells us if we are actually producing more goods and services, not just if the prices have gone up.
Real GDP Growth Rate: The percentage change in real GDP from one year to the next. This is the number you hear on the news!

How to Interpret GDP Data (Your Detective Toolkit!)

When you see a graph or table showing Hong Kong's real GDP growth rate, here's how to analyze it:

Step 1: Look at the sign (+ or -).

  • Positive Growth Rate (+%): This means the economy is in an expansion. We are producing more this year than last year. The economy is growing! (e.g., +3%)
  • Negative Growth Rate (-%): This means the economy is in a contraction or recession. We are producing less than last year. The economy is shrinking. (e.g., -2%)

Step 2: Look at the size of the number.

  • A high positive number (e.g., +7%) means strong or rapid growth.
  • A low positive number (e.g., +0.5%) means weak or slow growth.

Step 3: Look for the overall trend over time.

  • Is the growth rate generally stable, or does it jump up and down a lot (this is called volatility)?
  • Can you spot major events? For example, you'll often see a sharp dip in the GDP growth rate during global crises.
Did you know?

Major events leave a clear fingerprint on Hong Kong's GDP data. For example, the 1997 Asian Financial Crisis, the 2003 SARS outbreak, the 2008 Global Financial Crisis, and the COVID-19 pandemic all caused significant contractions (negative growth) in Hong Kong's economy. But often, a sharp recovery followed!

Common Mistake Alert!

Be careful not to confuse the level of GDP with the growth rate of GDP. A high growth rate means the economy is growing faster, but it doesn't necessarily mean it's the biggest. Think of it like a race: a runner who is behind might have a faster speed (growth rate) at a certain moment, but is still not in first place (level).

Key Takeaway for National Income

To describe the trend of national income, you should look at the real GDP growth rate. Identify periods of expansion (+) and contraction (-), and describe if the growth is strong or weak. Always try to link sharp changes to real-world events you know about!


Section 2: Trends in the General Price Level (Inflation & Deflation)

The general price level tells us the average price of goods and services in an economy. Think of it as the "cost of living". We measure its change using the Consumer Price Index (CPI).

Quick Review: Inflation, Deflation, and CPI

Consumer Price Index (CPI): Measures the average change in prices paid by households for a basket of consumer goods and services.
Inflation: A sustained increase in the general price level. Your money buys less than it did before. It is measured by a positive inflation rate.
Deflation: A sustained decrease in the general price level. This sounds good, but it's often a sign of a very weak economy. It is measured by a negative inflation rate.

Calculating the Inflation Rate

The formula is simple and important to remember!

$$ \text{Inflation Rate (%)} = \frac{\text{CPI}_{\text{this year}} - \text{CPI}_{\text{last year}}}{\text{CPI}_{\text{last year}}} \times 100\% $$

How to Interpret Price Level Data

When you see a graph of the inflation rate:

  • Positive and Rising: Prices are rising, and at an accelerating pace. This is inflation.
  • Positive but Falling: Prices are still rising, but more slowly than before. This is called disinflation. (e.g., inflation rate falls from 5% to 2%). This is a very common point of confusion!
  • Negative: Prices are falling. This is deflation.
Hong Kong's Price Story

Hong Kong has experienced both inflation and deflation. After the Asian Financial Crisis in 1997, Hong Kong went through a long period of deflation from 1998 to 2004. People delayed spending because they expected things to get even cheaper, which further weakened the economy. In most other years, Hong Kong has experienced mild inflation.

Key Takeaway for Price Level

The key is to look at the inflation rate. A positive rate means inflation, and a negative rate means deflation. Remember the special case of disinflation: a falling but still positive inflation rate. It means prices are still going up, just not as fast!


Section 3: Trends in Unemployment

The unemployment rate is a key indicator of the health of the labour market. It tells us what percentage of the people who are willing and able to work cannot find a job.

Quick Review: Labour Force and Unemployed

Labour Force: The total number of people who are either employed or unemployed. (It doesn't include people who are not looking for a job, like full-time students or retirees).
Unemployed: A person who is of working age, does not have a job, is available for work, and has been actively looking for a job.

Calculating the Unemployment Rate

Another must-know formula!

$$ \text{Unemployment Rate (%)} = \frac{\text{Number of Unemployed Persons}}{\text{Labour Force}} \times 100\% $$

How to Interpret Unemployment Data

When you analyze the unemployment rate:

  • A rising rate: The unemployment rate is going up. This means it is becoming harder for people to find jobs. This is generally a bad sign for the economy.
  • A falling rate: The unemployment rate is going down. It is becoming easier to find jobs. This is a good sign!
  • "Full Employment": Even in a healthy economy, the unemployment rate is never 0% because some people are always in the process of changing jobs. For a developed economy like Hong Kong, a very low rate (e.g., around 3%) is often considered close to full employment.
Did you know?

Just like with GDP, unemployment rates in Hong Kong are heavily influenced by economic shocks. The unemployment rate hit record highs after the Asian Financial Crisis and during the SARS outbreak. Why? Because during a recession, firms produce less, so they need fewer workers and may lay people off.

Key Takeaway for Unemployment

The unemployment rate tells us how healthy the job market is. A rising rate is a sign of economic weakness, while a falling rate is a sign of economic strength. It almost always moves in the opposite direction to GDP growth.


Section 4: Putting It All Together - The Big Picture

These three indicators don't exist in isolation. They are all connected and together they tell the story of the business cycle—the natural ups and downs of an economy.

The Typical Relationship

Here's a simple way to connect the dots:

During an Economic Boom (Expansion):
  • National Income (Real GDP): Growth is strong and positive.
  • Unemployment: The rate is low and falling, as businesses hire more workers to produce more.
  • Price Level: Inflation may start to rise, as everyone has more income and wants to buy more things, pushing prices up.
During an Economic Bust (Recession):
  • National Income (Real GDP): Growth is negative or very weak.
  • Unemployment: The rate is high and rising, as businesses cut back on production and lay off workers.
  • Price Level: There is low inflation or even deflation, as people and businesses spend less, leading to falling prices.
Think of it like this:

When the economy's "engine" (GDP) is running hot, the "temperature" (inflation) might rise and almost everyone who wants a job has one (low unemployment). When the engine stalls, the temperature drops and many people are left without work.

Final Summary and Exam Tip

In your DSE exam, you might be given a chart or a set of data about Hong Kong and asked to "describe the economic performance".

Your job is to be that economic detective!

  1. Analyze each indicator separately: Talk about GDP growth (expansion/contraction), the price level (inflation/deflation), and unemployment (rising/falling).
  2. Connect them: Explain how the trends relate to each other. For example, "During this period, Hong Kong experienced a recession, as shown by the negative real GDP growth. This was accompanied by a rising unemployment rate, as firms laid off workers."
  3. Use the data! Always quote specific figures from the table or graph to support your points.

Practice looking at data from the Census and Statistics Department website. The more you practice telling the story, the easier it will become!