Business conditions in Hong Kong improving at fastest rate in last three years, according to key survey results

Nikkei Purchasing Managers’ Index records bump off the back of increased mainland demand, but sounds note of caution over looming US interest rate hike

PUBLISHED : Thursday, 03 August, 2017, 3:30pm
UPDATED : Thursday, 03 August, 2017, 11:20pm

Hong Kong’s private sector grew at its fastest rate in nearly three and a half years last month due to greater demand from across the border, though the prospect of higher interest rates is still causing pessimism at companies, a key economic indicator has shown.

The Nikkei Hong Kong Purchasing Managers’ Index (PMI), compiled monthly to gauge sentiment in the city’s private sector, using questionnaires sent to more than 300 companies, rose from 51.1 in June to 51.3 last month.

A PMI figure above 50 indicates private sector activity is expanding, while a sub-50 score indicates contraction.

Although the monthly index rise was just 0.2, the latest reading was the strongest in almost three and a half years. Of the 29 months from March 2015 to last month, 24 saw scores under 50.

“The latest PMI reading was the best in nearly three-and-a-half years, reflecting stronger growth in both output and new orders. Especially encouraging was a further increase in export sales to China. A stronger yuan partly contributed to higher export growth,” said Bernard Aw, principal economist at IHS Markit, which runs the survey.

“However, business sentiment became more negative despite improving demand. Companies remained concerned about a still-weak economic climate, anticipation of higher US interest rates, rising prices for raw materials and greater competition. That may limit the sustainability of the current upturn.”

The report stated that export orders from the mainland recorded their largest jump since February 2014.

Companies in Hong Kong have also hired more people, with employment numbers rising for three consecutive months.

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“Meanwhile, companies reported higher purchasing activity in July, citing higher sales and the need to build stocks. The rate of buying was at the fastest for over six years. Increased purchasing boosted inventories. July data showed a further rise in stocks of purchases, with the rate of accumulation the best seen so far this year,” the report said.

“There were signs of an easing of inflationary pressures in July. Total cost inflation slowed from June despite a stronger rise in purchase prices for inputs. The rate of inflation was the weakest since a decline was recorded last June. Slower wage growth was partly responsible for the softer uptick in overall cost burdens.”

Last month, Hong Kong’s Financial Secretary Paul Chan Mo-po said the city’s economy was growing faster than expected and there was “a high chance” the government would raise its forecast for the year by half a percentage point from the original 2-3 per cent.

He said at the time the year-on-year growth figure in the second quarter would not be as high as the 4.3 per cent seen in the first, as the base figure on which comparisons were made had been unusually low in the first quarter of 2016. But he said growth in the first half was expected to beat forecasts.