S&P Global: Hong Kong PMI fell to 49.3 in March, business sentiment returned to contraction zone for the first time in 7 months.
The global March Hong Kong Purchasing Managers' Index (PMI) of the S&P fell from a 35-month high of 53.3 in February to 49.3, reflecting a return to contraction in business conditions. Although the decline was slight, it was the first weakening since August of last year.
The outbreak of war in the Middle East has impacted market demand, resulting in a decrease in output and new business in Hong Kong in March. The S&P Global Hong Kong Purchasing Managers' Index (PMI) for March fell from a 35-month high of 53.3 in February to 49.3, reflecting a return to contraction in business sentiment. Although the extent of the contraction is slight, it marks the first weakening since August last year.
According to S&P Global, the overall increase in input costs and selling prices in Hong Kong has slowed down, leading to a decrease in inflationary pressures. However, due to expectations of significant price hikes by suppliers, businesses have actively increased procurement, resulting in increased inventory levels. Employment has increased, which helps alleviate backlog; however, concerns about the impact of the Middle East conflict have led businesses to be more cautious about production in the coming year.
The decline in the March PMI index reflects a reduction in new orders for businesses, marking the largest drop in nine months and reversing the strong expansion seen over the past five months. Surveyed businesses mentioned that the Middle East conflict has impacted consumer confidence, stock market performance, and customer willingness to spend, affecting sales.
Export trade in March also saw a similar decline, putting an end to a four-month expansion period. However, demand for orders from China has been on the rise for six consecutive months, albeit at a slower pace, indicating a moderate increase overall.
Both output and new orders contracted in March, but businesses expanded their workforce once again, with moderate employment growth reaching its highest in nearly two years. Surveyed companies usually cited the hiring of employees to fulfill recently acquired orders. As a result, business backlogs have decreased for the first time since December last year.
Procurement activities in March were more frequent than the previous month, with the fastest expansion rate in three years. This increase can be attributed to companies undertaking new projects and continued growth in orders over several months. Some businesses also mentioned purchasing additional materials due to expected price hikes by suppliers. Accumulated procurement inventories reached their highest level in nine months. Delivery performance from suppliers showed slight improvement, different from the delayed deliveries seen in February.
Annabel Fiddes, Deputy Director of Economic Research at S&P Global Market Intelligence, stated that businesses reported a decline in market demand due to the impact of the Middle East conflict, leading to a contraction in output and new orders for Hong Kong's private enterprises in March, contrasting with the stable growth seen in the first two months of the year. Surveyed businesses mentioned a weakening of customer confidence and purchasing power, resulting in pressure on local and export order demands, although sales from mainland China continued to expand. Inflationary pressures continued to decrease, especially on procurement prices.
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