Company employees control a robotic arm to produce satellite components at the ASPACE Hong Kong Satellite Manufacturing Center on Tuesday. (WILLIAM XU / CHINA DAILY)

Hong Kong’s private sector continued to move on a downward trajectory in September as accelerated contraction in demand, both domestically and internationally, dampened businesses’ confidence, according to S&P Global.

The city’s purchasing managers index dropped from 49.8 in August to 49.6 in September, marking a third consecutive month of decline. A reading above 50 indicates expansion, while one below signifies contraction.

Although costs of raw material, transport and labor continued to climb in September, leading to a sustained rise in average input prices, the inflation eased from the month earlier, and price pressures showed signs of abating

According to the report, which was released on Thursday, new orders fell for a third straight month in September, posting the sharpest drop since a year ago, as deteriorating domestic and external conditions, increased competition and severe weather conditions adversely affected client demand.

READ MORE: HK's PMI sees steepest fall since 2008 financial crisis

As a result, purchasing activity among firms dropped in the previous month, marking the fastest decline since April 2022.

“September’s PMI data revealed that operating conditions within Hong Kong Special Administrative Region’s private sector continued to weaken at the end of the third quarter, albeit only marginally,” said Jingyi Pan, economics associate director at S&P global Market Intelligence.

“To some extent, this was attributed to Typhoon Saola’s disruptions, though a sharper decline in new orders further outlined wider demand issues,” she said, referring to the No 10 storm that battered the city in early September.

Although costs of raw material, transport and labor continued to climb in September, leading to a sustained rise in average input prices, the inflation eased from the month earlier, and price pressures showed signs of abating. Firms passed on some of those rising prices to their clients.

“Input cost inflation fell to signal easing cost pressures for Hong Kong SAR private sector firms, which was a positive sign. That said, there were indications of a reacceleration in the rate of purchase price increases, attributed to raw material and transport costs. This could lead to further worsening of confidence if sustained, as pessimism about output in the year ahead” through the end of the third quarter, Pan said.

Billy Mak Sui-choi, associate professor of the school of business at Hong Kong Baptist University, told China Daily that the latest PMI of 49.6 provides insights into a complex interplay of factors impacting the economy, mainly falling into two categories — demand and supply.

“On the demand side, the slower-than-anticipated economic recovery of global markets, such as the US and Europe, has contributed to the overall sluggish global demand. On the supply side, the rising raw material and energy prices are influenced by the ongoing Russia-Ukraine conflict and tensions between China and the US. These fluctuations of production factors carry the potential to impact the manufacturing industries, adding a dash of uncertainty to the mix,” he said.

Mak added that while the PMI index indicates a need for vigilance and attention, “it is not a significant cause for alarm at this stage” as it is only slightly less than the 50 benchmark.

READ MORE: Private sector remains gloomy despite rise in PMI

“Given the bearish sentiment among manufacturers, the role of the Hong Kong government may be limited as it acts as an intermediary rather than the ultimate buyer of the final products. However, if the downward trend in PMI continues, the government could consider implementing measures such as providing increased financing and liquidity to support and facilitate manufacturing operations. These steps could help alleviate financial constraints and potentially stimulate growth in the manufacturing sector,” he added.