Tracking Hong Kong economy with a novel leading index

Abstract

We construct a monthly Hong Kong Composite Leading Index that closely tracks Hong Kong's economy. This index has strong correlations with real economic indicators and perfectly predicts downturns like COVID‐19 epidemic. In forecasting exercises, a 1% rise in the index predicts roughly 0.7% increase in Gross Domestic Product (GDP) growth. These findings are robust against alternative index designs and various checks. The index can be updated monthly ahead of GDP release for policy makers and financial analysts. It is overall a timely, transparent, and empirically validated gauge of Hong Kong's economy.