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Hong Kong economy

Why Hong Kong business outlook remains gloomy despite slight September growth

PMI rebounds to 51.2 in September from 49.7 in August, but weak mainland demand dampens sentiment

PUBLISHED : Friday, 06 October, 2017, 5:18pm
UPDATED : Friday, 06 October, 2017, 5:20pm

Hong Kong’s private sector rebounded to record a slight growth in September, according to a key economic indicator, although businesses retained a pessimistic outlook for the year ahead.

Analysts expect the city to be on track for an economic growth of 3.5 per cent for the full year, in line with the government’s forecast of 3 to 4 per cent.

The Nikkei Hong Kong Purchasing Managers’ Index, which gauges private sector business conditions including manufacturing, services, retail and construction, rebounded to 51.2 in September – up from August’s 49.7 mark.

A score of 50 or above signals growth in the economy, while anything below reflects decline. The rate of growth or contraction is shown by how far the figure deviates from the median of 50.

The index is calculated from a monthly poll of executives from more than 300 companies in the city to gauge sentiment in the city’s private sector.

“Hong Kong’s private sector showed signs of recovery at the end of the third quarter but business sentiment remained downbeat,” Bernard Aw, principal economist at UK-based analytics firm IHS Markit, said.

Aw said he expected Hong Kong to remain on track for a growth of up to 4 per cent for 2017.

“However, the stronger Hong Kong dollar could dampen future growth. It already had an impact on exports to mainland China and contributed to higher business costs.”

Japanese financial group Nomura has also maintained its growth forecast for Hong Kong of 3.5 per cent.

Hong Kong growth target raised 1 percentage point amid faster than expected surge

“The average PMI for July-September (50.7) is slightly below the April-June average (50.9),” its analysts said in a report, but they added that there was a possibility for overall growth to exceed the 3.5 per cent mark.

The group predicted that the financial services and real estate sectors, which account for a quarter of Hong Kong’s output, would be likely to continue contributing to GDP growth in the second half of this year.

Another positive sign was the number of visitors to the city, which went up 1.9 per cent year on year between January and August, following a 4.5 per cent drop in 2016. Retail sales in the city also grew six months in a row in August.

But the Nikkei report pointed to factors which curbed optimism, including weakening demand in mainland China.

“Survey data indicated that sales to mainland China fell for the first time in five months. Anecdotal evidence suggested that yuan depreciation and policy restrictions had dampened Chinese demand,” the report stated.

Business costs also went up for a 15th straight month – inflation rose to its highest in 31/2 years, fuelled by reports of a rise in the prices of raw materials such as steel and paper.