4th July 2024 – (Hong Kong) Hong Kong’s private sector experienced further contraction in June, marking a persistent downturn amid challenging economic conditions and increasing competition, according to the latest S&P Global Hong Kong SAR Purchasing Managers’ Index (PMI).
The index, a crucial measure of the economic health of the manufacturing sector, dropped to 48.2 in June, down from May’s 49.2, continuing below the neutral 50.0 threshold that separates expansion from contraction. This represents the most significant decline since September 2022, highlighting a tough environment for businesses in the region.
The downturn was primarily driven by a notable decrease in new orders, which fell at the fastest rate in 21 months, coupled with a reduction in business activity that has now declined for two consecutive months. Notably, the manufacturing sector reported the sharpest fall in both new orders and output, underscoring the sector’s difficulties.
Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, commented on the findings, stating, “The latest PMI data indicates a further deterioration in business conditions. Firms are grappling with subdued economic circumstances and fierce regional competition, which are dampening sales and operational activity.”
Despite the challenging landscape, there was a slight improvement in the level of business pessimism, which reached a seven-month low. Some businesses have started to see more favourable demand prospects, which has led to a solid increase in purchasing activity and inventory levels, suggesting a glimmer of hope for the coming months.
The survey also highlighted rising cost pressures, with input costs increasing due to higher raw material prices and wages. This inflationary pressure forced companies to raise their selling prices slightly in June, potentially impacting consumer demand further.
“The threat of rising costs is a significant concern for local businesses,” Pan added. “While the inflation rate for inputs remains below average, the recent uptick poses a risk that could further dampen demand if not managed carefully.”
Employment levels continued to suffer, with companies reducing their workforce for the second month in a row due to the decrease in backlogged work and ongoing operational challenges.
Looking ahead, Hong Kong SAR firms remain cautious about the future, with many expressing concerns over the persistent rise in competition and the overall subdued economic conditions. However, the moderation in pessimism and an increase in purchasing activities offer some potential for stabilisation in the near term.
The Hong Kong SAR PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in about 400 private sector companies across manufacturing, construction, wholesale, retail, and services sectors. This index is widely regarded as a reliable indicator of economic trends, providing insights that are critical for investors, policymakers, and businesses.
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