Private sector in Hong Kong contracts in February on weaker Chinese demand

Nikkei Hong Kong PMI slipped to 49.6 from 49.9 in January as client demand also dampened by strong exchange rate

PUBLISHED : Friday, 03 March, 2017, 11:48am
UPDATED : Friday, 03 March, 2017, 11:36pm

The city’s private sector contracted last month as companies struggled to find buyers on the back of weakening mainland demand and a strong local currency.

The Nikkei Hong Kong Purchasing Managers’ Index, which gauges business conditions in manufacturing, services, retail, construction and other sectors, fell to 49.6 ast month, down from 49.9 in January.

Hong Kong’s private sector downturn continues as PMI falls again

A reading below 50 indicates contraction while a figure above 50 shows growth.

Both output and new orders declined in the month, prompting firms to shed jobs as they became stuck with a backlog of goods.

“Weak economic conditions and a strong exchange rate dampened client demand. Unsurprisingly, business sentiment about future output remained downbeat,” said Bernard Aw, economist at IHS Markit, which compiled the survey.

The poor figure came in stark contrast to Financial Secretary Paul Chan Mo-po’s optimism about the economy expressed in his budget speech last month, in which he predicted growth to pick up this year and reach between 2 and 3 per cent, up from the 1.9 per cent recorded last year.

Weak economic conditions and a strong exchange rate dampened client demand
Bernard Aw, IHS Markit

Shrinking demand took its toll on the job market, with firms reporting a lower level of employment after upping staff numbers marginally in the previous month. Some of that fall was due to resignations and organisational changes, the survey showed.

“With a weak domestic market, foreign demand has not been filling in the gap,” Aw said.

Export orders remained in negative territory, with mainland demand for Hong Kong products and services dropping further.

The index had been below 50 for 21 months before a short expansionary reading of 50.3 in December. It fell below 50 again in the first two months of this year.

Retail sales also slipped in January despite a rise in the number of mainland visitors and Lunar New Year growth expectations. The 0.9 per cent decline was the 23rd consecutive monthly contraction, with further drops forecast for this year.