PMI sinks to eleven-year low in Q3

Hong Kong’s economy is contracting at an annual rate of just over 3% in Q3.

The private sector’s health remained stuck in a downturn although the Purchasing Manager’s Index (PMI) edged up slightly to 41.5 in September from sinking to an eleven-year low at 40.8 in August, IHS Markit reported.

“At 42, the average PMI for the third quarter is the lowest seen since the depths of the Global Financial Crisis in early-2009, and broadly indicative of the Hong Kong SAR economy contracting at an annual rate of just over 3% in the third quarter,” commented Bernard Aw, principal economist at IHS Markit.

With survey indicators suggesting that the economic malaise is unlikely to subside anytime soon, business expectations for 2020 sank to their lowest for seven-and-a-half years, noted Aw.

Also read: Hong Kong heads towards recession as August PMI sinks to 11-year low

The ongoing protests as well as trade tensions continued to impact business activity. The tourism and retail sectors are the most affected, with tourist arrivals recording a 40% decline whilst retail sales recorded their worst-ever performance in two decades.

Although numbers are marginally better compared to August, declines continues amongst economic sectors. New business continued to deteriorate sharply in September whilst new sales led to a further reduction in business activity at the end of the third quarter. The fall of output was during September was the second-fastest since early-2009, added IHS Markit.

“In a further sign of business pessimism, companies cut back further on purchasing activity. Input buying was reduced at the second-steepest rate since the survey started just over 21 years ago,” the report stated.

Employment also decreased for the second straight month, but quickened compared to August.

On the price front, the deflationary trend extended into September, said IHS Markit, with the cost burdens falling further and at its fastest rate since January 2016. Accordingly, this led firms to reduce their selling prices further as an effort to boost sales and clear stocks.
The Nikkei Hong Kong PMI is a leading indicator of economic health that gauges business conditions in the private sector. PMI readings below 50 represent an economic contraction.