Small and medium-sized enterprises in Hong Kong are adopting a more cautious sentiment amid an uncertain global economic outlook clouded by Middle East tensions, while analysts remain optimistic about the city’s growth and see opportunities ahead.

The Hong Kong Productivity Council on Thursday released the findings of its latest Standard Chartered Hong Kong SME Leading Business Index survey for the second quarter.

The overall index, which reflects companies’ market sentiment, dipped 0.6 points from the previous quarter to 43.3, indicating a more cautious approach among SMEs in the special administrative region.

Meanwhile, a subgauge measuring SMEs’ perceptions of the global economy plunged 15.5 points to around 21, indicating a significant deterioration in their view of the external economic environment.

The survey, conducted in March and involving 825 local SMEs across various sectors, also found that 67 percent of respondents anticipated an increase in raw material costs. Many of them believed that pressure from employee salaries and rent will also weigh on profits.

Tommy Wu, a senior economist at Standard Chartered, said the SMEs have become more downbeat about the market because of the turmoil in the Middle East, which led to high oil prices and potential economic repercussions.

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“That said, SMEs sounded more confident about the recovery in Hong Kong and the resilience of the Chinese mainland’s economy,” Wu said, citing positive standings in both the subindexes of investment and recruitment sentiment.

In a separate SME survey by CPA Australia, one of the world’s largest accounting bodies, 71 percent of the companies expect their businesses to grow this year, and 76 percent of them anticipate growth in the local economy — both at record highs compared with the previous results.

The survey also showed that the proportion of SMEs having difficulty paying their debts had fallen to 3 percent in 2025 from 22 percent in the previous year, thanks to a stronger cash flow resulting from improved business performance, as well as a robust capital market and a recovering property market in Hong Kong.

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Cliff Ip Wang-hoi, CPA Australia’s Greater China divisional councilor, said rising geopolitical risks could create headwinds for small businesses, in sectors such as trade and logistics, because of higher fuel costs and supply-chain disruption. Nevertheless, he said that “there are opportunities amid the challenges”.

“As many regions become more unpredictable or less secure, Hong Kong’s stable and consistent business environment, together with supportive policy settings, including the city’s low and simple tax regime, stand out as important advantages in attracting international companies and investors,” Ip said.

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These developments will present fresh momentum and create scope for local SMEs to build partnerships, expand networks, and tap into new markets, Ip said. He called on local SMEs to capitalize on the trend and adapt their business strategies accordingly.

Ip remains confident about Hong Kong’s overall business outlook for the year, and said that the city has recently seen many overseas capital inflows, which are benefiting sectors like family offices, wealth management, and professional services.

Wu said Hong Kong’s growth got off to a good start this year, with the initial public offering market and the trade and logistics sector performing well.

He forecast 3.2 percent GDP growth for the year, expecting these positive trends to offset the impact of high oil prices.

Contact the writer at gabylin@chinadailyhk.com