Hong Kong: PMI edges down in January, but business conditions remain strong
February 5, 2018
The Nikkei Hong Kong Purchasing Managers’ Index (PMI), released by IHS Markit, inched down from 51.5 in December to 51.1 in January. Despite the slight moderation, the indicator remained above the 50-point threshold that separates expansion from contraction in the sector, where it has now been for five consecutive months.
January’s figure was driven by a pick-up in production and new orders growth on the back of strengthening client demand, particularly from mainland China. It is worth noting that the pace of output growth in January was the fastest in nearly four years, while new business growth posted the highest gain since February 2015. However, employment levels declined in January as firms sought to cut costs, contributing to higher backlogs of work. Delivery times increased in the month, partly due to difficulties in securing inputs.
On the price front, input price inflation continued to increase sharply, which prompted firms to raise selling prices higher. However, profit margins were squeezed as input costs outpaced growth in selling prices. Nonetheless, business confidence improved in January as optimism surrounding economic conditions, opportunities brought by e-commerce and planned new products, brightened firms’ outlooks.
Commenting on January’s result, Bernard Aw, Principal Economist at IHS Markit, noted:
“Hong Kong’s private sector economy started 2018 on a positive note, recording both output and new business growth in January. Perhaps more important was that businesses remained positive about the outlook in the year ahead, suggesting that companies are setting aside the pessimism seen in the past three years as economic growth improves.”
Author: Javier Colato, Economist