ECONOMIC REVIEW
(A Monthly Issue)
February, 2014
Economics & Strategic Planning Department
http://www.bochk.com
Why Can Hong Kong's Unemployment Rate Continue To Reach New Low?
Dai daohua, Senior Economist
According to the latest statistics, the seasonally adjusted unemployment rate for Hong
Kong from December 2013 to February 2014 dipped to 3.1%, a new low in this recovery
cycle and the lowest in sixteen years. Given that the Hong Kong economy grew only 1.5%
in 2012 and 2.9% in 2013, a pace slower than the past ten year average of 4.5% or the
projected 3.5% trend growth in the medium term, the unemployment rate between 3.1%
and 3.5% during the period suggests that there may be changes in Hong Kong's labor
market.
The improving labor market
Hong Kong's latest unemployment rate without the seasonal adjustments stands at 2.9%,
also the lowest since February 1998 and below 3.0% for the first time in this recovery
cycle. Nowadays, Hong Kong's economy is recovering at a below par pace. Under the
circumstances, the unemployment rate continuously declines to the current 3.1% from the
high of 5.4% registered in mid-2009 instead of spiking. Sixteen years ago it was the
opposite. Ravaged by the Asian Financial Crisis, Hong Kong's unemployment rose quickly
from the low of 2.1% just prior to the crisis to 3.0% between December 1997 and February
1998. It ended the year 1998 by surging to 5.9%.
Currently, Hong Kong's labor force amounts to 384.43 million, close to the historical high
of 388.71 million recorded seven months ago, up nearly 19% from sixteen years ago.
Meanwhile, total employment totals 373.18 million, up 17% from sixteen years ago under
the same unemployment rate. Moreover, the underemployment rate stands at 1.2%, lower
than the 1.6% registered in February 1998. Total underemployment declines to a new low
of 46.9 thousand, less than the 52.0 thousand sixteen years ago. The only labor statistics
that turns for the worse is the number of total unemployed increasing to 112.5 thousand,
higher than the 87.4 thousand sixteen years ago.
The unemployment rate is a lagging economic indicator. During the first three quarter of
1997, right before the Asian Financial Crisis, Hong Kong recorded 5.9%, 7.5% and 6.3%
real GDP growth. The unemployment rate stabilized at 2.2% by yearend after touching the
low of 2.1% in mid-year, even though GDP growth slumped to only 1.1% in 4Q97 before
contracting substantially. This time, even though the Hong Kong economy grew no faster
The viewpoints in the Economic Review do not necessarily represent the opinions of the Bank of China (Hong Kong) Limited.
than 3.1% (2Q13) during the past seven quarters, the unemployment rate has been hovering
at low level nonetheless, suggesting different growth drivers.
Generally speaking, the performance of the labor market has more to do with nominal
economic activities. In this regard, the improving labor market in Hong Kong cannot easily
be linked to Hong Kong's nominal GDP, either, because of the mild growth of the latter.
After registering growth of 7.1% and 8.9% in 2010 and 2011, Hong Kong's nominal GDP
growth decelerated to 5.3% in 2012 and further to 4.9% in 2013. According to the HKSAR
Government Budget's estimate, nominal GDP trend growth projection in the medium term
is reduced to 5.5% (consisted of 3.5% real growth and 2.0% GDP deflator). Thus, Hong
Kong's nominal economic activities do not seem to be robust enough to drive the labor
market.
Hence, there are two probable explanations for Hong Kong's resilient labor market. Firstly,
the domestic economic drivers are stronger than the headline GDP figure suggests.
Secondly, even though external trade has been week, its labor market has remained stable,
helping to drive the overall unemployment rate to new low.
Hong Kong's real GDP growth was only 1.5% in 2012. However, private consumption
expenditure, government consumption expenditure and gross domestic capital formation
contributed 2.6%, 0.3% and 1.6% of growth, totaling 4.5%, the same as the average overall
growth over the past ten years. It was the drag of 0.8% from inventory drawdown and 1.6%
from net exports that resulted in the 1.5% headline GDP growth. Inventory declined in both
2011 and 2012, subtracting 2.5% and 0.8% respectively from GDP. Nevertheless, it has to
be rebuilt at some point of time given the still robust domestic economic drivers. In the
year 2013, the drag turned to a tiny boost of 0.1% of GDP.
During the four quarters of 2013, change in inventory contributed 0.5%, -1.6%, 1.0% and
0.5% to GDP growth. Combined with the three domestic drivers, their contribution totaled
4.1%, 3.7%, 3.4% and 4.2% of GDP, all greater than the headline figures of 2.9%, 3.1%,
2.8% and 3.1% of growth, underpinning the labor market. As for external trade, Hong
Kong has always been in deficits in terms of goods trade, but surplus in terms of services
trade. Hong Kong always imports more goods than it exports. Part of the goods imports
are destined for re-exports, the remainder is for domestic use. In 2012 and 2013, retained
imports grew 3.0% and 3.7% respectively, similar to the 2.9% and 3.6% growth in goods
exports, suggesting similar demands from internal as well as external sectors.
The changing labor market
Amongst Hong Kong's four pillar industries, the Trading & Logistics Industry contributes
2
the most to value added and employment. According to the statistics till end 2012, the
Trading & Logistics Industry accounted for 24.6% of total value added in GDP. Although
down from the 28.5% recorded in 2005, it was still substantially higher than the Financial
Services Industry's 15.9% share. In terms of employment, the situation was similar, with
the Trading & Logistics Industry accounted for 20.9% of total employment. Although down
from the 24.4% recorded in 2005, it was also substantially higher than the Professional
Services and Other Producer Services Industry's 13.2% share.
During the past two years, Hong Kong's external trade experienced setbacks due to external
shocks. Growth in both exports and imports were below 4.0%. But the unemployment rate
for the import/export trade and wholesale sector declined to 2.7% toward the end of 2013
after initial rise. The unemployment rate for the transportation, storage, postal and courier
services, information and communications sector also declined to 2.7%, both below the
overall unemployment rate. At the end of 2013, employment in the import/export trade and
wholesale sector amounted to 531,200, while that in the transportation, storage, postal and
courier services, information and communications sector 443,900, slightly up from 2011's
546,000 and 427,000. This suggests that as Hong Kong's largest employers, the Trading &
Logistics Industry did not resort to large scale layoffs, which in turn ensured of the stability
in the labor market.
In 2009 after the global financial tsunami hit, Hong Kong's seasonally adjusted
unemployment rate between June and August surged to 5.5%, while the unadjusted
unemployment rate to 5.9%. The construction, retail, accommodation and food services,
and manufacturing industries were hit the hardest with unemployment rate surging to
10.3%, 7.6% and 6.4% respectively. The unemployment rate for the import/export trade
and wholesale industry was 5.0%, while that for the transportation, storage, postal and
courier services, information and communications industry at 4.7% and financing,
insurance, real estate, professional and business services industry at a lower 3.8%. Fast
forward to 2013, retail, accommodation and food services industry and construction
industry still had relatively higher unemployment rate at 4.3% and 4.1% respectively.
Given Hong Kong's tourism sector having record visitors, the higher than average
unemployment rate for the former is unsettling, casting doubts on the employment potential
of the tourism sector. On the other hand, the unemployment rate for the transportation,
storage, postal and courier services, information and communications industry was lower at
2.7%, close to the 2.5% for the financing, insurance, real estate, professional and business
services industry, contrasting the argument that Hong Kong's trade related industries are
sunset industries, at least not from point of view from the historically lower volatility in its
unemployment rate.
3
In 2012, the HKSAR Government compiled a report on Hong Kong's manpower
requirement projection. The result shows that from 2010 to 2018, the pillar industries of
Financial Services, Professional Services and Other Producer Services, and Tourism will
see annual average growth of manpower requirement at 2.5%, 2.3% and 2.9% respectively,
higher than the overall 1.1% growth. Only Trading and Logistics Industry's average
manpower requirement growth will be below par at 0.3%. This projection is based on the
assumption of Hong Kong's weakening intermediary role and trade protectionism. This
projection is consistent with developments in recent years. But the deterioration in
unemployment for the Trading and Logistics Industry has not materialized, arguing for its
resilience instead.
Full employment
Right before the Asian Financial Crisis, Hong Kong's unemployment rate dipped to 2.1%
between June and September 1997. Looking ahead, can Hong Kong's unemployment rate
drop another percentage point from the current 3.1% to the same level? Judging from the
changing economic and demographic landscape, it seems unlikely, as the current 3.1%
unemployment rate has already approached the level of full employment.
From 3Q96 to 3Q97, Hong Kong's real GDP growth was 4.8%, 6.0%, 5.9%, 7.5% and
6.3% respectively, averaging 6.1%, which was higher than the past ten year average of
4.5% and the projected 3.5% trend growth. Moreover, higher inflation resulted in 10.5%,
13.1%, 12.5%, 14.1% and 12.4% nominal GDP growth for the same period. It was such
robust economic activities that led to unemployment rate touching 2.1% at that time.
Looking ahead to this year, Hong Kong's nominal GDP growth will likely only come at
half of the pace, with trend growth projected at 5.5%. Therefore, maintaining the
unemployment rate at current level is a tall task, let alone reducing it further.
In mid-1997, Hong Kong's population stood at 6.48 million. But by the end of 2013, it has
grown by 11.3% to 7.22 million. Meanwhile, Hong Kong's labor force has risen 20.7% to
3.88 million from 3.21 million, a pace faster than population growth. This means more
people are looking for work and the Hong Kong economy has to create more jobs just to
keep the unemployment rate steady. As the economy has bid farewell to the phase of rapid
growth, the unemployment rate will unlikely revisit the low of 1997, because we have
probably approached the full employment threshold given the current economic growth and
demographic change.
4
(Key Economic Indicators)
.
GDP
2012
19,644
1.5
2013
20,372
2.9
2013/Q3
5,124
2.8
2013/Q4
5,416
3.0
2012
2013
2013/12
2014/1
588
33,755
34,343
39,122
4,778
544
35,053
35,597
40,607
5,010
46
3,063
3,109
3,652
544
43
2,992
3,035
3,234
200
10.4
3.2
2.9
3.9
-7.6
3.8
3.6
3.8
-7.9
0.1
0
1.8
-4.3
-0.4
-0.4
-2.7
4.1
4.3
4.3
4.6
115,533
6.2
70,503
-29.9
2012
12.45
3.2
1.5
2013
11.84
3.2
1.4
2014/2
3,987
-58.7
2013/112014/1
11.3
3.1
1.3
2014/1-2
9,084
-45.4
2013/122014/2
11.25
3.1
1.2
2012
9.8
7.2
2013
11.0
10.6
2013/12
5.7
6.1
2014/1
14.5
16.8
(
) arrivals (ten thousands)
(%) Change (%)
4,862
16
5,430
11.7
522
9.3
546
17.8
Financial Market
2012
775.05
2013
775.4
2013/12
775.4
2014/1
776.6
22.2
11.1
11
9.7
12.3
12.4
9.7
12.3
12.4
7.7
9.6
9.6
9.3
11.7
7
10.6
5.1
16.2
10.6
5.1
16.2
7.6
1.2
14.2
17.8
15.7
23
(
) GDP ($100 Million)
(%) Change (%)
.
External Trade
(
) Total trade ($100 Million)
Domestic exports
Re-exports
Total exports
Total Imports
Trade balance
(%) YOY Growth (%)
Domestic exports
Re-exports
Total exports
Imports
.
Consumer Price
(%) Change in Composite CPI (%)
.
Sale & Purchase of Building Units
( ) No. of agreements
(%) Change (%)
.
Employment
(
) Unemployed (ten thousands)
(%) Unemployment rate (%)
(%) Underemployment rate (%)
.
Retail Market
(%) Change in value of total sales (%)
(%) Change in volume of total sales (%)
.
.
Visitors
(US$100 = HK$)
H.K. Dollar Exchange Rate (US$100 = HK$)
(%) change in Money Supply (%)
M1
M2
M3
(%) Change in deposits (%)
Total deposits
In HK$
In foreign currency
(%) Change in loans & advances (%)
Total loans & advances
9.6
16
16
use in HK
use outside HK
Trade financing
7.1
16.5
10.2
13.8
21.4
43.8
13.8
21.4
43.8
5.0000
22,657
5.0000
23,306
5.0000
23,306
(%) Best lending rate (%)
Hang Seng index
49.6
5.0000
22,035