Hong Kong: Stronger mainland Chinese demand feeds into nearly four-year high PMI in December
In December, the Nikkei Hong Kong Purchasing Managers’ Index (PMI) released by IHS Markit edged higher, climbing further into expansionary territory. Moreover, the index ticked up from 50.7 in November to 51.5, inching away from the 50-point threshold that distinguishes expansion in the private sector. December’s acceleration was the eighth month of expansion recorded last year and reflected the ongoing improvement in business conditions following a nearly two-year slump.
December’s higher reading was primarily the result of a pickup in output and renewed growth in new order books. Overall client demand rose in the month as new business returned to growth, lifted by a further increase in sales to mainland China after initially rebounding in November. This uptick in mainland Chinese demand, along with stronger promotional activity and higher client referrals, sent business activity expanding at the fastest pace in nearly three years. Moreover, these gains pushed firms to increase hiring, with employment climbing for the first time since July despite signs of spare capacity. Backlogs, as a result, contracted in the month. Firms increased buying activity on softer input price inflation. Selling prices, however, were raised more aggressively. For the first time in nearly three years, business confidence turned positive in December as optimism surrounding the economic climate in Europe, as well as planned new products and services for the year ahead, brightened firms’ outlooks.
Commenting on December’s uptick, Bernard Aw, Principal Economist at IHS Markit, noted:
“December PMI data signaled a positive end to 2017 for Hong Kong’s private sector economy. Especially encouraging were survey indicators suggesting that the private sector may see a firm start to 2018. Chinese demand rose further, contributing to a renewed growth in total new business inflows in December. Higher sales suggest that further output growth can be expected in January.”