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Private sector conditions in Hong Kong deteriorate in June

Staff Writer |
Hong Kong’s private sector suffered another deterioration in business conditions at the end of the second quarter, with both output and new orders showing further declines in June.

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Employment levels also decreased as firms preferred to tap on existing labour to keep on top of their workloads.

Backlogs of work fell further.

Firms also cut back on purchasing activity which, in turn, led to another fall in input inventories.

The downturn was accompanied by mounting cost pressures amid reports of higher prices for paper, copper and plastics.

Moreover, pessimism about the future fell to its lowest level in over a year.

The seasonally adjusted headline Nikkei Hong Kong Purchasing Manager’s Index (PMI) – a single-figure measure of developments in overall business conditions – edged lower to 47.7 in June, from 47.8 in May, signalling the steepest deterioration for nearly two years.

The latest reading brought the average for the second quarter to 48.2, representing the first quarterly decline since early 2017.

Weighing on the headline PMI were contractions in both output and new orders.

Survey data indicated that production and new business inflows continued to decrease at a marked rate, albeit slightly slower than May.

Companies reported softer client demand, especially from China.

Sales to China fell for a second straight month, though at a slower rate than in May.

According to anecdotal evidence, lower sales were linked to high competition, poor weather and a weaker economic environment.

There were mentions that rising China-US trade frictions also restrained new orders.

Reduced sales allowed firms to work through their workloads, contributing to another fall in backlogs of work which, in turn, weighed on hiring heading towards mid-2018.

Job creation has not been reported so far this year.

Meanwhile, supply-side constraints remained evident during June, with delivery times of inputs continuing to lengthen.

Limited stocks at distributors were a major reason for shipment delays.

Stretched supply chains, global commodity shortages, and higher prices for raw materials were reportedly responsible for the solid rise in cost inflation during June.

Latest data showed that overall input costs rose to the strongest degree in four months, with inflation for purchase costs at the highest for over six-and-a-half years.

Despite accelerating, wage growth remained mild.

Higher operating expenses pushed firms to pass these onto clients, resulting in the first rise in output prices for four months, albeit at only a marginal rate.

Finally, business sentiment remained negative during June and maintained its downward trend.

Pessimism was the sharpest recorded by the survey since March 2017 with firms pointing to increasing trade tensions between the US and China as a factor.


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