Hong Kong Business Conditions Stabilized in June, Following Three Months of Deterioration

After three months of deterioration, the business condition of the Hong Kong private sector finally stabilized in June, according to the HSBC Hong Kong Purchasing Managers’ Index (PMI).

Total new work volumes decreased at a weaker pace that was fractional overall, while output fell marginally. The rate of job shedding also eased in June.

Meanwhile, purchasing activity increased for the first time since February, which in turn contributed to the quickest expansion of stocks of purchases since the start of 2013.

The PMI posted fractionally above the 50.0 neutral mark at 50.1 in June, signalling that operating conditions in Hong Kong’s private sector stabilised. This was up from May’s 11-month low of 49.1, and ended a three-month sequence of deterioration.

The stabilization of business conditions partly reflected a weaker fall in total new business received by Hong Kong private sector firms in June. Furthermore, new orders fell only fractionally in the latest survey period.

Data suggested that new work was in part dampened by a solid reduction of new business received from mainland China.

Furthermore, new orders from the mainland have now decreased for three consecutive months. Anecdotal evidence linked the overall reduction in new business to subdued client demand.

Reduced new workloads led to a further reduction in private sector output in June. That said, the rate of contraction was only slight.

Rise in purchasing activity

Meanwhile, purchasing activity rose for the first time in four months in June. The rate of increase was moderate overall and contributed to a further rise in stocks of inputs.

Moreover, it was the strongest expansion of inventories since the start of 2013. Anecdotal evidence suggested that firms raised stocks due to expectations of increased client demand in upcoming months.

Employment fell for the third month running in June. However, the pace of job shedding eased from May and was only marginal.

Despite lower workforce numbers, backlogs of work declined for the second successive month in June. The rate of depletion was only slight, however, and similar to that recorded in May.

Overall input costs faced by Hong Kong private sector firms increased again in June and at a solid pace. That said, inflation remained weaker than the historical series average.

Companies passed on part of their higher input costs to clients by raising their output charges for the fourteenth month in a row. That said, the rate of inflation was moderate, having eased to a three-month low.

Near-term growth in Hong Kong's private sector moved closer to stabilisation in June.

"Although output continued to contract, there has at least been an easing of the pace of contraction in new orders and employment. However, the decline in new business from mainland China remains acute, and could limit some of the upside to growth in Q3," says John Zhu, Economist at HSBC in Asia.

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