PMI hits 48.2 in July as trade jitters shake markets

Business sentiment plunged to a near two-year low.

Business conditions in Hong Kong’s private sector economy inched up from 47.7 in June to 48.2 in July but heating trade tensions are dampening prospects of further growth, according to IHS Markit. 

Also read: Trade war could cut 1% of Hong Kong's GDP

The Nikkei Hong Kong PMI is a leading indicator of economic health as it gauges business conditions in the private sector. PMI readings below 50 represent an economic contraction.

“Hong Kong’s private sector got off to a poor start at the beginning of the third quarter, with business conditions deteriorating further in July, according to latest Nikkei PMI data,” Bernard Aw, principal economist at IHS Markit said in a statement.

Companies held back on purchasing activity amidst a reported lack of raw materials like electrical components, resulting in depleted inventories. Stocks of purchases have also fallen for seven months. 

Output and new orders were similarly hit amidst escalating rhetoric between the US and China, with inflows of new business plunging by the greatest extent in two years. Chinese demand for Hong Kong products also shrank for the third consecutive month.

Also read: Trade jitters dampen export growth to 3.3% in June

“Fears of an escalating trade war saw new orders fall at the steepest rate in two years, whilst business sentiment hit its lowest since Hong Kong’s retail sales slump of 2016,” added Aw.

A sliver of good news is that the rate of overall input inflation slowed from June amidst weaker rise in purchase costs like plastics and paper.