Concerns over inflation weigh on 2011 outlook
Hong Kong's private sector finished on a strong note last year but worries over inflation weigh on the outlook for this year.
The purchasing managers' index compiled by HSBC/Markit rose at the fastest pace in eight months last month, at 55 and up from 53.5 in November, driven largely by new businesses. However, input costs also saw the steepest rise on record, led by higher purchase prices and wages.
'The momentum in Hong Kong's economy showed no signs of easing as 2010 drew to a close,' said Mark McCombe, the chief executive of HSBC in Hong Kong. But he said, 'Inflationary pressures are emerging in Hong Kong and as we enter 2011, this issue should be monitored closely.'
Hong Kong, which relies on imports for food, fuel, commodities and raw materials, is vulnerable to the threat of inflation. Some economists believe inflation is partly imported from across the border, with the mainland's consumer prices rising to their 28-month peak of a 5.1 per cent growth in November.
They believe the inflationary pressure in Hong Kong will persist this year even though the mainland's central bank has taken steps such as raising interest rates.
Despite higher wages in Hong Kong, employment fell marginally for the second straight month last month. But most of those polled said their staff levels were unchanged since November, meaning employees had received pay rises or bonuses.
A recent Hang Seng Bank research report forecast higher consumer price inflation and lower exports would drag Hong Kong's economic growth to 4.5 per cent this year from an estimated 6.5 per cent growth last year.
It forecast business costs would surge after office rentals rose by double-digits for six months until last month.
Wages would increase further, with workers standing to get 'moderate' pay rises with the implementation of the minimum wage, it said.
The Hang Seng report said additional business costs would be passed on to consumers, increasing consumer price inflation to 3.7 per cent this year from an estimated 2.5 per cent last year.
It also warned of an asset bubble in Hong Kong because of the excess liquidity sloshing around globally.
By the numbers
Inflationary pressure in Hong Kong will persist this year, analysts say
Higher consumer price inflation and lower exports will drag Hong Kong's economic growth this year to: 4.5%
From an estimated growth last year of: 6.5%
Hang Seng Bank says additional business costs will be passed on to consumers, raising this year's consumer price inflation to: 3.7%
