Hong Kong: PMI falls to nearly two-and-a-half year low in November on weak mainland demand
The Nikkei Hong Kong Purchasing Managers’ Index (PMI), which is released by IHS Markit, fell from 48.6 in October to 47.1 in November, marking the lowest print since June 2016. As a result, the index dug further below the 50-point threshold that separates expansion from contraction in the private sector, where it has been since April.
The deterioration of operating conditions in November was again largely due to weaker demand conditions originating notably from mainland China, amid heightened trade tensions with the United States. New orders declined at the fastest pace in over two years in November, while exports to the mainland tumbled at the quickest clip in three years. Consequently, firms continued to reduce output, and also cut their staffing levels. Given the lower orders and activity, backlogs of work fell again in the month, while purchasing activity declined at the steepest rate in over three years, which in turn caused a decline in stocks of inputs.
Despite subdued demand, manufacturers’ supply chains were still under pressure in November, as evidenced by a further lengthening of supplier delivery times due notably to stock shortages—though the rate of increase was noticeably slower than in October. Looking at price developments, on the other hand, upward pressures eased notably in November, with input prices rising only modestly in the month. Meanwhile, manufacturers’ selling prices fell for the fourth straight month as firms offered discounts to combat muted demand. Overall, the outlook for the sector appears bleak in coming months: business confidence deteriorated further in November, and firms’ expectations of their future output level reached the lowest point since March 2016, largely weighed down by concerns over the impact of the U.S.-China trade war.
Commenting on this month’s reading, Bernard Aw, principal economist at IHS Markit, noted:
“Escalating trade wars brought greater uncertainty to the business environment which disrupted firms’ growth plans. Unsurprisingly, business sentiment remained negative. […] Higher competition and a weaker renminbi were factors cited for pessimism. Forward-looking indicators suggest that further momentum could be lost in coming months”.