Hong Kong: Business conditions in the private sector improve in August
September 5, 2018
The Nikkei Hong Kong Purchasing Managers’ Index (PMI), which is released by IHS Markit, inched up from 48.2 in July to 48.5 in August. Despite the increase, the index remains below the 50-point threshold that separates expansion from contraction in the private sector.
August’s reading reflected soft client demand, which pushed down new orders and output. Poor demand conditions also weighed on employment and purchasing activities. Export sales to China fell markedly in August on the back of ongoing trade disputes with China. Against this backdrop and in order to boost sales, businesses reduced selling prices despite the increase in input costs as a result of a weaker HKD and higher commodity prices.
Regarding July’s PMI reading, Bernard Aw, principal economist at IHS Markit, commented:
“Hong Kong’s private sector is on track for a second quarterly decline after latest Nikkei PMI data indicated another deterioration in business conditions during August. Other survey indicators suggest the downturn is likely to continue. The current sequence of deteriorating business conditions is the longest since the end of 2016. Survey evidence suggested that the key concern of Hong Kong’s private sector businesses was the adverse impact on economic activity from rising US-China trade frictions. The PMI’s gauge of business expectations, the Future Output Index, fell to the lowest level since the end of 2016. Firms cut selling prices to boost sales amid weak demand conditions. Cost inflation remained mild. Overall, the latest headline PMI is consistent with GDP growth running around an annual rate of 2% in the third quarter.”
Hong Kong Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists see fixed investment increasing 3.3% in 2018, which is up 0.1 percentage points from last month’s forecast. For 2019, the panel expects fixed investment to grow 2.8%.