Hong Kong: PMI falls below critical 50-point threshold in April as mainland demand weakens
May 4, 2018
In April, the Nikkei Hong Kong Purchasing Managers’ Index (PMI), released by IHS Markit, fell from 50.6 in March to 49.1, a clear warning signal that the growth momentum observed in the region in past quarters waned at the start of Q2. Indeed, the April PMI fell below the 50-point threshold that separates expansion from contraction in the private sector; it had been above the threshold since September of last year. Moreover, this happened immediately after the index recorded its best quarterly performance in over four years in Q1.
The lower reading in April was driven by a fall in output—which declined at the steepest pace in almost a year and a half—as well as a fall in new business. While overall sales declined, sales to mainland China expanded, albeit at the softest rate in six months. Meanwhile, backlogs of work fell at the fastest pace in over a year, despite a sustained fall in employment numbers for the fourth consecutive month. Purchasing activity declined in tandem, putting downward pressure on input inventory levels, which also fell at the fastest rate in over two years. Nevertheless, evidence showed remaining signs of strain in companies’ supply chains, with reported shortages of raw materials and delayed deliveries from suppliers. Input costs rose at a slower pace in April, while vendors reduced their selling prices for the second consecutive month in a bid to shore up demand.
Commenting on April’s result, Bernard Aw, Principal Economist at IHS Markit, noted:
“With a fall in new orders and business sentiment remaining negative, the economy seems set to slow further in the coming months. Indeed, after a positive start to the year, the second quarter could prove challenging. The April data are running at a level broadly consistent with Hong Kong GDP growth at around 2.5%”.
Author: Joffrey Simonet, Economist