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Hong Kong private sector rounded off the year on weak footing

Staff Writer |
Hong Kong’s private sector rounded off the year on a weak footing, with PMI data signalling a further deterioration in business conditions during December.

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The impact of trade wars continued to weigh on business activity.

Both output and new orders declined again, alongside a further decrease in sales to mainland China.

Firms remained negative about the year ahead business outlook, which saw them scaling back on hiring and purchasing activity.

There was also a lack of capacity pressure across the private sector, as indicated by another drop in backlogs.

On the price front, inflationary pressures accelerated, with faster rises seen in both input prices and output charges.

The headline PMI is a composite indicator designed to measure the performance of Hong Kong’s private economy.

The seasonally adjusted headline Nikkei Hong Kong Purchasing Manager’s Index™ (PMI™) rose from 47.1 in November to 48.0 in December, marking another deterioration in business conditions of the private sector.

The latest reading is the ninth time in as many months that the headline index has recorded below the neutral 50.0 level.

December saw further signs of weak demand conditions.

New business intakes fell for a ninth straight month, dragged by another decline in Chinese orders.

Escalating trade tensions reportedly remained the key reason affecting sales.

This in turn weighed on business activity and resulted in lower backlogs.

Firms cut back on output in December, as was the case in each month since April this year.

Lower output requirements generated spare operating capacities.

Employment levels declined further in December.

Job creation has now not been recorded throughout 2018.

Companies also reduced their purchasing activity in the latest survey month, preferring to tap into current inventories.

Having reported deteriorating vendor performance for 20 months, December data signalled a stabilisation in supply chains, as indicated by no changes to delivery times.

Despite softening demand, companies raised selling prices for the first time in five months.

Anecdotal evidence suggested that rising marginal costs for output due to lower business activity pushed firms to hike prices to protect margins.

Higher input prices were also another reason for charge inflation.

Cost inflation was recorded for a third month running during December, accelerating to the fastest since July as paid prices for inputs rose.

Increased raw material prices, particularly gold, were cited as a factor for inflation.

In addition, firms also reported a larger wage bill.

Finally, business confidence remained downbeat at the end of the year.

Almost one-fifth of panellists projected lower output in the year ahead, with many highlighting concerns about trade war effects on business activity as well as greater competition.


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