Hong Kong: PMI soars to 22-month high in December and crosses 50-threshold
January 5, 2016
The Nikkei Hong Kong Purchasing Managers’ Index (PMI) released by IHS Markit rose to 50.3 in December from 49.5 in November. December’s reading marked the return of the PMI to expansionary territory, after it had dropped below the 50-point threshold in February 2015.
Although December’s print suggested that business conditions improved in Hong Kong for the first time in almost two years, several looming issues call for caution. The pick-up was not caused by expansions in output, new business or employment, all of which are still entrenched in contractionary territory. Subdued demand from mainland China also allowed companies to work through their backlogs of work.
December’s reading was however strongly supported by the fastest increase in purchasing activity in almost three years. In anticipation of higher demand in coming months, many business amassed pre-production inventories at the greatest rate since April 2000. Although longer delivery times also helped the index, evidence suggests a lack of available suppliers was behind the result. On prices, firms continued to see input cost inflation rising in December, mainly driven by higher wages and costs of raw materials. However, not only did they not roll over these costs onto consumers, but they actually gave them discounts in a bid to remain competitive.
Regarding the outlook for 2017, Bernard Aw, Economist at IHS Markit, stated that, “Chinese demand for Hong Kong’s products and services continued to wane. Overall client appetite remained sluggish, as reflected by lower volumes of output and new business. That said, signs of improving external conditions, and steadying growth in mainland China’s manufacturing sector may see Hong Kong business conditions stabilize in 2017, although growth risks remain tilted to the downside.”
Author: David Ampudia, Economist