Hong Kong: PMI falls back into contractionary territory in January
February 3, 2017
The Nikkei Hong Kong Purchasing Managers’ Index (PMI) released by IHS Markit dipped to 49.9 in January from 50.3 in December, which had marked the first reading in expansionary territory in almost two years. The index is now once again below the 50-point threshold that separates expansion from contraction in business conditions.
Demand for Hong Kong’s goods and services continued to decline, both in the domestic and external markets. New orders and output remained firmly entrenched in contractionary territory in January, while a stronger U.S. dollar—to which the Hong Kong dollar is pegged—continued to erode the competitiveness of Hong Kong’s products in overseas markets and dragged on new business from abroad. Lower demand also allowed firms to work through their backlogs of work. On a more positive note, purchasing activity remained strong in January due to higher expected demand in upcoming months, while staffing levels rose slightly.
However, positive trends in purchasing and employment may be short-lived. In that regard, Bernard Aw, Economist at IHS Markit, explains, “it is unlikely that firms will buy and hire more in the quarters ahead. Rising price pressures are prompting companies to be keener on cost management, especially when they have limited pricing power due to growing competition and weak economic conditions.”
Author: David Ampudia, Economist