Hong Kong's private-sector economy remained under great pressure in April amid coronavirus-containment restrictions, an IHS Markit survey published on Wednesday shows.
Although the data firm’s seasonally adjusted headline Hong Kong Purchasing Manager’s Index (PMI) rose to 36.9 in April from 34.9 in March, it pointed to a severe deterioration of private sector conditions, among the steepest since the survey started in July 1998.
READ MORE: HK private sector business activity tumbles at a record rate
Business sentiment remained deeply negative as the majority of firms were pessimistic about a recovery over the next 12 months due to the pandemic
Bernard Aw
IHS Markit principal economist
A PMI reading below 50 indicates contraction on a monthly basis.
“The start of the second quarter saw Hong Kong's private sector economy stuck in a deep downturn caused primarily by worldwide measures taken to stem the COVID-19 outbreak,” said Bernard Aw, IHS Markit principal economist.
“Business sentiment remained deeply negative as the majority of firms were pessimistic about a recovery over the next 12 months due to the pandemic,” Aw added.
Business activity and new orders continued to fall sharply, accompanied by further cuts to employment and purchasing activity. Vendor deliveries were still severely affected by supply chain distortions; prices have declined further and business sentiment remains very negative.
This was partially driven by a severe fall in new business from overseas, with a further sharp contraction in orders from the Chinese mainland. Supply chains remain under pressure, with firms reporting much longer delivery times.
ALSO READ: Business activity takes a hit from prolonged unrest
The combined effects of delivery delays and falling sales led firms to cut back purchasing activity. Input purchases and input inventories were reduced severely in April, with input purchases falling at one of the fastest rates since data collection started nearly 22 years ago.
Business expectations for the year ahead continue to be very negative. The majority of companies expect a further reduction in activity over the coming year. The most common reason cited was concerns about the economic impact of the COVID-19 outbreak — particularly on retail, tourism and event sectors.
Retail sales in Hong Kong endured 14 months of consecutive falls with sales plummeting 42 percent from a year ago in March.
The city’s retail sector has always been reliant on inbound tourists — especially those from the mainland. However, visitor arrivals plunged some 99 percent on a yearly basis in March.
As business slack continues, overall business costs fell further from March on a combination of lower paid prices for inputs and wage savings (linked to redundancies and furloughed workers). At the same time, firms provided discounts to boost sales, with selling prices falling.
“We expect retail sales to continue to perform poorly in the following months, as tourists are unlikely to return before vaccines are available while local consumers’ confidence remain weak,” warned Wan Qian, an economist at Bloomberg Economics.
“The relaxing of these restrictions will not lead to a quick recovery as fears of potential job losses cause consumers to postpone some purchases as a precautionary measure.
“Travelers will also be price-sensitive and tighten their budgets. Thus, we are less optimistic about the prospects of the retail and tourism sectors, only seeing a shallow U-shaped recovery toward the end of 2020,” Daiwa Capital Markets said.
OCBC Wing Hang Bank Economist Carie Li agreed: “As the containment measures are not likely to be lifted globally any time soon, we think any recovery going forward will be slow and moderate. As such, we hold onto our view that economic contraction in Hong Kong will be deeper, at an annual rate of negative 4 percent this year.”
The city has sunk into a deep economic recession, shrinking by annual rate of 8.9 percent in the first three months of the year, the largest decline since gross domestic product data was available in 1974.
