S&P Global Hong Kong PMI rebounded to 49.5% in July

According to the latest data from S&P Global, the Hong Kong SAR Purchasing Managers Index (PMI) rose to 49.5 from 48.2 in June after seasonally adjustment in July. However, despite the rebound, the index has been below the boom-bust line of 50 for three consecutive months, showing that Hong Kong's business environment continues to deteriorate. Although the overall contraction has eased, the business operating environment still faces challenges.

The business environment continues to weaken, with new orders and production declining

Data show that entering the second half of 2024, Hong Kong's private economy will continue to shrink, but the rate of decline has slowed down compared to June. New orders and production fell again, but the decline narrowed significantly. Although new business from mainland China has picked up, new export orders are still contracting. In addition, employment levels continue to decline as the private sector takes a more pessimistic view of future business prospects. In terms of prices, although cost inflation fell to the lowest level in three and a half years, output prices showed an expansion trend in July.

Private enterprises have reduced their business activities, with the manufacturing industry reducing production most significantly

In July, Hong Kong's private enterprises were affected by the downturn in the market and intensified competition, and they reduced their business activities for the third consecutive month. Industry data further showed that the manufacturing industry has seen the most significant production cuts, but the overall degree of tightening has fallen from last month's high of more than two years and is classified as a slight tightening. At the same time, the decline in new orders in July also slowed down from the previous month. The decline in new export orders received by enterprises also narrowed, while new business received from mainland customers reversed the decline of the past year and grew again.

Backlog of work decreases, employment levels decline

The backlog decreased again in July due to a decrease in new orders. Employment levels have declined as pressure on production capacity has eased, and the main reason for corporate downsizing is the failure to fill vacancies, rather than large-scale layoffs.

The overall business sentiment of private enterprises is pessimistic

The overall business sentiment of Hong Kong's private companies remained pessimistic in July, a sentiment that has persisted for a year. Companies say they expect to reduce production in the coming year due to intensifying competition and an uncertain economic outlook. However, some companies are optimistic about the demand prospects, so they stepped up purchasing and increased inventory in July.

Input costs rise, but at a slower pace

In July, overall input costs continued to rise, but the increase fell to the lowest level in three and a half years.

Purchase prices fell for the third time in four months, while staff costs rose at their slowest pace in six months. However, private companies raised their selling prices in July to share the pressure of rising costs with customers.

The business environment is sluggish but the downward trend is slowing down

Jingyi Pan, deputy director of the S&P Global Market Intelligence Economic Research Department, said that Hong Kong’s PMI shows that the business environment is still sluggish, but the downward trend will begin to slow down in the second half of 2024. The declines in new orders and output narrowed in the latest survey period, and the overall impact was limited. In addition, companies showed greater willingness to raise prices in July, while input cost inflation fell to levels last seen in early 2021, which has eased the profit pressure on Hong Kong companies. Compared with the inflation rate for sales prices and input costs, the gap was the smallest in four months.

Hope that demand will rebound and economic vitality will be restored

Although the overall business sentiment in July was still bearish, the degree of pessimism was not as obvious as the long-term average. In order to cope with future business needs, companies continue to increase procurement. In general, only by hoping for an improvement in demand can the vitality of growth be restored across different indicators of economic activity and employment.

DBS Tony Hsieh: Expected to return to expansion zone in fourth quarter

DBS Hong Kong Economic Research Department economist Xie Jiaxi believes that with the U.S. Federal Reserve expected to cut interest rates in September, it will have to wait until the fourth quarter of this year for Hong Kong's PMI to have a chance to return to the expansion range.

He said the increase in export orders was mainly due to improved demand for electronic components from the mainland and even globally. As demand related to artificial intelligence gradually increases, it is believed that it will continue to support Hong Kong’s exports. He also pointed out that Hong Kong’s business environment still depends on interest rates and currency exchange rates. If the Hong Kong dollar exchange rate weakens after interest rate cuts in the future, it is expected to improve the overall business environment, mainly in the tourism, service industries, and exports.