PMI drops to 47.9 in September as trade tensions bite hard

New business to China dropped sharply.

Business conditions in Hong Kong’s private sector continued to deteriorate after falling from 48.5 in August to 47.9 in September as business were hit by deepening trade tensions between the US and China, according to IHS Markit.

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

Total new orders declined for the sixth straight month in 2018 as orders from China declined sharply on the back of growing trade jitters. The pace of reduction in overall new orders was amongst the steepest seen in the past two years.

“Hong Kong’s private sector suffered a further deterioration in business conditions in September as rising trade tensions continued to weigh on demand,” Bernard Aw, principal economist at IHS Markit said in a statement. “Growing uncertainty over future demand saw firms cutting back on input purchases and trimming inventories as part of efforts to conserve capital.”

Also read: Trade jitters and bearish equities weigh heavily on Hong Kong's 2019 GDP

As firms held back on purchasing activity, inventories of inputs failed to increase this year further aggravated by destructive typhoons and supply shortages that slowed delivery schedules. Business activity also shrank to its greatest extent in a little over two years.

The Future Output Index also remained below the no-change level of 50.0, signalling that more firms continued to anticipate lower output in the year ahead than those expecting a rise.