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Economic Update

2020/07/31

Turning a Crisis into an Opportunity

"You can see the computer age everywhere but in the productivity statistics,” said Robert Solow, a Nobel laureate in economics in 1987. This “productivity paradox” seems to have re-emerged, more than three decades after Solow made his remark.

According to recent productivity data from the Conference Board, global growth in total factor productivity (TFP), which measures innovation-related efficiency gains, has continued to stay at low levels. In 2019, it was -0.2% compared to 1% during 2000-2007, and 0.1% during 2010-2017 (Figure 1). For Hong Kong, TFP growth in 2019 was an even more dismal -1.9%.

Sustainable economic progress will not be achieved by simply using more factors of production such as capital and labour, due to their diminishing returns. As such, productivity is an important catalyst of economic growth and competitiveness in the longer run, in particular for an economy facing an ageing population like Hong Kong. It is also instrumental in raising the living standard of citizens.

Hong Kong needs to boost productivity and get back on track, as its economy has been hit hard by the Sino-U.S. trade war, geopolitical developments and social unrest, as well as the coronavirus pandemic. In the second quarter of 2020, the Hong Kong economy contracted by 9% year-on-year, following a downwardly revised 9.1% slump in the previous quarter.

Hong Kong's capital market has attracted listings of Chinese tech giants such as Alibaba and JD.com recently. Despite this, digital transformation in the city can hardly be described as impressive.

While Covid-19 has brought the city the deepest recession on record, it could prove to be a decisive turning point for Hong Kong to embrace technology, and march towards a cashless economy, boosting productivity growth. We cannot afford to miss this opportunity.

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