Key Hong Kong economic index for August shows worst of downturn may be over

The Nikkei Hong Kong PMI rebounded to 49.0, up from 47.2 in July, marking a softer rate of decline

PUBLISHED : Monday, 05 September, 2016, 2:13pm
UPDATED : Monday, 05 September, 2016, 8:46pm

Hong Kong’s private sector showed signs of stabilising in August with a key economic index marking the slowest contraction in the last 14 months.

The Nikkei Hong Kong Purchasing Managers’ Index, which gauges private sector business conditions including manufacturing, services, retail and construction, rebounded to 49.0 in August – up from July’s 47.2 mark.

The promising uptick was buoyed by smaller drops in output, new businesses, and new orders from the mainland.

Despite the softer rates of decline, the August figure was still below the 50 neutral mark, which meant the contraction of private businesses continued. A PMI figure of more than 50 means the economy is expanding and anything below 50 indicates contraction.

The result echoed better-than-expected GDP figures in the second quarter, which expanded 1.7 per cent, up from the 0.8 per cent in the previous quarter.

The latest retail sales data meanwhile, showed a 7.7 per cent decline year-on-year at the end of July – an improvement on double-digit declines earlier this year.

The August PMI result prompted an optimistic outlook from some analysts who took the news as a sign that the worst of the recent economic downturn may be over.

Annabel Fiddes, an economist at IHS Markit, which compiled the index on behalf of Nikkei, said the data further signalled that the sector is edging closer to stabilisation even though there was decline.

“Overall, the data suggest that the worst may be over,” she said.

“But there still needs to be a meaningful upturn in client demand in order for a strong and sustained recovery to take place, which may be challenging given the relatively weak global economic environment.”

According to Nikkei, while the pace of job shedding continued to be moderate, staffing levels still declined in August – the eighth consecutive month of contraction. But companies said the rate of depletion for backlogs was the slowest seen in over a year.

Inflationary pressures also intensified in August with overall input costs rising at the quickest pace since January 2015, driven in part by the sharpest rise in purchasing prices in nearly five years. Meanwhile, output costs also increased for the first time since July 2015.

In a report to clients, HSBC said the August PMI data was “encouraging”, and consistent with the housing market activity and retail sales stabilising over recent months.

But the bank added that it was still wary of downside risks to growth over the coming months.

“In the absence of any meaningful improvements in demand, we are unlikely to see any sharp turnaround in growth,” it said.