Hong Kong’s May PMI drops to 49.2 as business environment worsens

5th June 2024 – (Hong Kong) Hong Kong’s economic landscape showed signs of strain as the S&P Global Hong Kong SAR Purchasing Managers’ Index (PMI) retreated to 49.2 in May from April’s 50.6, indicating the most significant downturn since November last year. This descent below the critical 50 mark, which delineates expansion from contraction, highlights a weakening in the region’s business operations.

According to Jingyi Pan, Deputy Head of Economics at S&P Global Market Intelligence, the business environment has notably softened mid-second quarter, a trend hinted at by declining orders in April. This period marked the first employment cutback since November last year and a return to contraction in production outputs. Additionally, while input costs continued to rise, companies reduced output prices for the first time since March 2022, squeezing profit margins. In response, businesses have been absorbing cost increases and offering additional discounts to sustain sales volumes.

The downturn was precipitated by a significant drop in new orders, which in May plummeted to a 20-month low. Forward-looking indicators such as the new orders index and the backlog of work index suggest that business conditions could remain subdued in the near term.

The report further indicated a contraction in business operations for the third time in four months due to declining new business, with the extent of reductions in output and order volumes reaching their most severe since October 2022. Survey respondents attributed the sluggish sales in May to fierce competition and an overall economic slowdown, with the construction sector experiencing the largest drop in new orders, and manufacturing leading the downturn in production.

For the first time since September last year, purchasing activity rose, diverging from the trend in new orders. This was partly due to businesses increasing purchases to ensure an adequate supply of inputs, which they also stored in anticipation of future needs. However, supplier delivery times have continued to deteriorate for three consecutive months.

Looking ahead, private sector enterprises remain pessimistic about their output prospects, with sectors such as wholesale and retail being particularly downbeat. Industry actors report that intense competition, soaring costs, and weak economic conditions cloud the business outlook, presenting a challenging environment moving forward.