Hong Kong's small and medium-sized enterprises have turned positive on the outlook for the economy in the first quarter in the face of improving prospects on the mainland and the easing of the fiscal crisis in the United States. The retailing sector in particular has become more upbeat, with its confidence index swinging back into positive territory at 51.9, according to a survey by the Hong Kong Productivity Council released yesterday. The survey, which was commissioned by Standard Chartered Bank, polled the views of 810 SMEs and the resulting index level of 46.2 was up from 37.4 in the third quarter of last year. SME retailing, which focused mainly on the sale of durable goods and daily necessities, showed a solid rebound in November although demand for higher-end products was still depressed. "Demand for household goods is on the rise and this benefited the smaller retail outlets operated by SMEs," said Leo Lam, the director of business innovation at the productivity council. However, since rental and staff costs continued to increase, the sector still faced some challenges, Lam said. Almost 54 per cent of respondents said they expected rental costs to continue increasing in the first quarter, compared with 36.2 per cent in the previous survey who said they expected rents to rise. More than a third of the SMEs foresaw rises in staff salaries, against 18.1 per cent three months ago, while 70 per cent thought raw materials and the cost of feedstock would increase, against 53.7 per cent previously. The manufacturing sector's confidence was also on the rise, with its confidence index jumping to 48.5 from 41.8, while the trading and wholesaling sector index climbed to 48.5 from 45.6. The overall index for the three industries was 49.5, against 46.3 in the previous quarter. "There are some concerns about the United States economy in the first quarter as the debt ceiling is still an unknown," said Kelvin Lau, a senior economist at Standard Chartered. "The growth engine for 2013 will largely be mainland China and Asia."