After just one month back in expansionary territory, Hong Kong’s business activity has dipped back into contraction.
The Nikkei-Markit purchasing managers’ index tracking private business activity in Hong Kong came in at 49.9 in January, down from December’s 50.3 and putting the gauge just below the 50-point mark separating contraction from growth. It had previously spent 21 months in contraction.
Falls in output and new orders accelerated from the previous month, both having remained in decline for 22 months.
A strengthening dollar undermined export competitiveness as new orders from abroad fell at the fastest rate in nine months, while new orders from China fell for the thirtieth consecutive month. Yet input costs also rose for the seventh straight month thanks to wage growth and rising raw materials costs.
The softening of headline contraction was aided by orders from mainland China dropping at their slowest rate since March 2015, but employment fell at a sharper rate in July and new orders and output once again contracted at a steady pace.
Bernard Aw, the Markit economist responsible for compiling the survey, was blunt in his analysis:
Overall, Hong Kong businesses remained pessimistic about the 12-month outlook for output, as reflected in our new-launched Future Output Index. Unless planned budgetary measures help to boost growth, policymakers may need to consider more fiscal stimulus.