Hong Kong: PMI edges up in April but remains stuck in contractionary territory
The Nikkei Hong Kong Purchasing Managers’ Index (PMI), released by IHS Markit, rose to 48.4 in April from 48.0 in March. The index nevertheless remained below the 50-point threshold that separates expansion from contraction in the private sector, where it has been since April 2018.
As in previous months, the U.S.-China trade dispute and a slowdown in the mainland continued to be the primary factors weighing on private sector activity in April. The decline in new orders worsened in the month due to a further slide in demand from mainland China, leading output to drop at a solid pace, while backlogs of work also continued to fall. Employment levels were stable in the month after a mild decline in March, which was largely due to voluntary resignations.
Due to feeble demand, firms continued to prioritize tapping into their existing inventories rather than buying new inputs, leading to a decline in purchasing activity and an improvement of delivery lead times from suppliers. Both input costs and output selling prices declined in the month, the latter due to firms’ price discounting efforts in a bid to clear out stocks and shore up demand. Turning to the outlook, business sentiment remained pessimistic in April, with expectations for output in the next 12 months remaining negative, due notably to the U.S.-China trade war.
This feeble business confidence is likely to deteriorate further in coming months, due to the recent increase in U.S.-China tariff rates enacted by the U.S. administration on 10 May. On top of the actual tariffs impeding business activity, the event signals renewed tensions and uncertainty regarding the dispute, including a heightened risk of further tariff escalation in coming months—which bodes poorly for economic momentum and business confidence. Moreover, the U.S. trade representative has begun the formal process to impose tariffs on all currently untaxed Chinese goods, which could see the new levies applied by the beginning of July. That said, the next G20 summit, scheduled for 29-29 June in Osaka, could provide a critical window for Presidents Xi and Trump to strike a deal and avoid hostilities escalating.