Hong Kong: Business conditions deteriorate at a softer pace in October
November 5, 2018
The Nikkei Hong Kong Purchasing Managers’ Index (PMI), which is released by IHS Markit, rose from 47.9 in September to 48.6 in October. Nevertheless, the index remained below the 50-point threshold that separates expansion from contraction in the private sector, where it has been for the past six months.
The deteriorating operating conditions in October again came on the back of weakening demand, particularly from mainland China as the country remains stuck in a trade war with the United States. New orders fell at a marked pace in October—though more slowly than in September—with sales to China recording the steepest decline since April 2016. Consequently, firms continued to reduce output and staffing levels—erasing the employment gains made year-to-date—while backlogs of work also fell. In addition, firms cut back on their purchasing activity in October, thus tapping into existing stocks and reducing input inventories for the tenth consecutive month. Despite this, raw material shortages kept applying pressure on manufacturers’ supplier chains, and caused supplier delivery times to lengthen at the steepest rate in over seven years. On the price front, input cost inflation was mild in October, while manufacturers continued to lower their selling prices in a bid to support demand. Overall, firms remained pessimistic about the 12-month outlook, with confidence declining further in October.
Commenting on this month’s reading, Bernard Aw, principal economist at IHS Markit, noted:
“Trade wars and tariffs continued to weigh on demand in Hong Kong as the fourth quarter began. […] the depreciation of the renminbi has eroded Chinese purchasing power which, in turn, reduced China’s demand for Hong Kong’s goods and services. The PMI survey remains indicative of GDP growth waning below 2% in the fourth quarter, and forward-looking indicators such as measures of business expectations and new order inflows suggest that further momentum could be lost in the months ahead.”
Author: Joffrey Simonet, Economist