PMI hits 48.6 in October as Chinese demand falters

The decline in sales to Chinese markets was the highest in two years.

Business conditions in Hong Kong’s private sector economy improved mildly after edging up from 47.9 in September to 48.6 in October although headline figures remained dismal as the tit-for-tat tariff war continued to weigh heavily on demand, according to IHS Markit. 

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.

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Firms were hit by lower workloads as Chinese demand dropped sharply. In fact, the decline in sales to Chinese markets was the greatest since April 2016. The tumbling renminbi ate away at Mainland purchasing power which effectively weighed in on demand for Hong Kong goods and services.

In response to lower work, companies cut back on input purchase and staffing levels in October.

“Both new business and output fell for a seventh straight month, which further dampened firms’ confidence. Future expectations remained negative, influencing companies to cut back on purchasing activity and hiring,” Bernard Aw, principal economist at IHS Markit said in a statement.

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Firms also turned to existing inventories, which depleted the level of stock of purchases for the tenth consecutive month. Despite lower appetite for inputs, supply chains were squeezed by raw material shortages and weather-related disruptions which lengthened the rate at which delivery times to its sharpest since April 2011.

“The PMI survey remains indicative of GDP growth waning below 2% in the fourth quarter, and forward looking indicators such as measures of business expectations and new order inflows suggest that further momentum could be lost in the months ahead,” added Aw.