This Sept 27, 2018 photo view shows residential and commercial buildings on Hong Kong island. (ANTHONY WALLACE / AFP)
HONG KONG - Hong Kong’s private sector sentiment fell to the lowest for nearly three years, reflecting a marked deterioration in the health of the private sector as reports of China-United States trade frictions damped client demand.
The seasonally adjusted headline Nikkei Hong Kong purchasing managers index (PMI) fell from 48.4 in April to 46.9 in May, its lowest level since June 2016. A reading below 50 indicates that small businesses are still worried about future business prospects.
Complied by financial market information provider IHS Markit, the Nikkei Hong Kong PMI comprises a composite index based on the weightings of new orders, output, employment, suppliers’ delivery times and stock of items purchased to gauge the measurement of development in overall business conditions.
The re-escalation of trade tensions boded ill for the Hong Kong economy as the mainland is by far the city’s largest export destination, accounting for over half of Hong Kong’s total exports. Consequently, business expectations for output in the year ahead remained pessimistic
Bernard Aw, principal economist at IHS Markit
The fall in new business was the largest in nearly three years, led by shrinking orders from the Chinese mainland. New business from the mainland decreased for a 13th straight month in May.
As business activity shrank, firms are cutting back on purchasing activity and stock holdings. Employment remained broadly stagnant while inflationary pressures were subdued. Survey data showed trade spat between the world’s two largest economies continued to weigh on business sentiment.
“The re-escalation of trade tensions boded ill for the Hong Kong economy as the mainland is by far the city’s largest export destination, accounting for over half of Hong Kong’s total exports. Consequently, business expectations for output in the year ahead remained pessimistic,” cautioned Bernard Aw, principal economist at IHS Markit.
“The survey is now broadly indicative of the economy expanding at an annual rate of below 1.5 percent,” Aw added.
In the first quarter, Hong Kong economy grew at the slowest pace in nearly 10 years. The 0.6-percent modest quarterly growth rate is much less than the 1.9 percent anticipated growth rate when goods exports, services exports and private consumption in the city all had all faltered in the preceding quarter.
The economic figure did not improve entering into the second quarter. The city’s exports dropped 2.6 percent year-on-year in April and retail sales tumbled 4.5 percent on a yearly basis in the same month.
“Looking ahead, the synchronized slowdown in global growth and the tariff war remain key risks to growth, but a more dovish US Federal Reserve rate stance is likely to bring some respite,” according to a HSBC research report.
The trade spat remains the biggest uncertainty while a synchronized global slowdown is more likely to be order of the day and the city will still be caught between crossfires, warned Kevin Lai, Asia ex-Japan Chief Economist at Daiwa Capital Markets. “Meanwhile, potential rapid liquidity changes are something we must watch out for in the near term.”
The deterioration in both goods and services exports in Hong Kong suggests that demand from the Chinese mainland and the rest of the world has suffered further this year. Although the mainland’s policy stimulus has been strengthened, it does not seem to have shown up in Hong Kong’s economic growth, according to Lai.
“Given economic data weaker than we previously expected, we are forecasting GDP growth of 2.4 percent for Hong Kong this year,” Hang Seng Bank Chief Economist Thomas Shik concluded.
HONG KONG NEWS