Hong Kong: Business conditions deteriorate further in June on weaker Chinese demand
July 5, 2018
The Nikkei Hong Kong Purchasing Managers’ Index (PMI), which is released by IHS Markit, fell for the fourth consecutive month in June, inching down to 47.7 from 47.8 in May and moving further below the 50-point threshold that separates expansion from contraction in the private sector. June’s print marks a near two-year low and rounds off a poor second quarter for the private sector, which is likely indicative of an economic slowdown in the quarter.
June’s performance was driven by contractions in both new work orders and output as demand from mainland China continued to wane. Firms also reported that concerns over trade tensions between the U.S. and China, strong competition and unfavorable weather conditions weighed on sales. Slower business activity led firms to continue to reduce backlogs of work, and firms scaled back on purchasing activity. In turn, employment fell again in June for the sixth month running as business sentiment regarding the year ahead fell to an over one-year low. Moreover, supply chain pressures, commodity shortages and higher prices for raw materials notably pushed up cost inflation in June. Purchase cost inflation, for example, hit an over six-and-a-half year high. Stronger cost pressures and higher operating expenses also led firms to raise output prices, albeit only marginally in light of softer demand.
In response to June’s PMI reading, Bernard Aw, Principal Economist at IHS Markit, commented:
“The deterioration of private sector activity in Hong Kong extended into the end of the second quarter, as PMI surveys suggested the economy suffered its first quarterly decline since the start of 2017 […] Furthermore, anecdotal evidence highlighted concerns that rising trade frictions between the US and China will weigh on growth.”