Hong Kong's private-sector activities shrank for the first time since December, underscoring concerns the mainland slowdown and euro-zone debt crisis are spreading to the city.
A purchasing managers' index (PMI) compiled by HSBC/Markit sank to 49.4 last month from 50.3, dragged down by the debt crisis, a decline in new business from the mainland, weak demand and higher unemployment. Any reading above the 50 threshold means expansion; anything below indicates contraction.
Economists and trade bodies said the mainland's deepening economic slowdown would hurt Hong Kong's prospects in the second-half of this year, while the recent downturn in the city's stock market would hurt the 'feel-good' factor and dampen demand and consumption.
'Hong Kong's private sector has yet to buckle under the weight of an intensifying euro-zone crisis and feeble mainland demand,' HSBC economist Donna Kwok said yesterday. 'But it is starting to show the first signs of fissures.'
PMI sub-indexes showed employment fell at the fastest rate last month since last September, while new orders from the mainland dropped for the second consecutive month.
Federation of Hong Kong Industries deputy chairman Stanley Lau Chin-ho said Hong Kong's economy had started to feel the pinch of the euro-zone crisis and the mainland's economic downturn.
'The city's fundamentals are so strong that it can withstand the beginning of a flu,' he said. 'We have felt the early signs of an economic slowdown. Brace for further signs in the rest of this year.'
Lau, who retails high-end watches in the city, said sales were flat so far this year compared with the same period last year as mainland tourists had become more prudent in spending. Hong Kong' retail-sales growth tapered off to 7.6 per cent in April from 13.2 per cent in March.
Lau said the impact of HSBC's decision to cut up to 3,000 jobs in Hong Kong by the end of this month would surface in coming months.
He added that the city's economy could also suffer from the export slump in the Pearl River Delta.