Tariff uncertainty dampens business confidence

Greater Bay Area expectation index fell 4.2% but remain positive.

Hong Kong businesses have become cautious amidst uncertainties brought by the US tariff policy, but expectations remain positive, according to the Standard Chartered Greater Bay Area Business Sentiment Index (GBAI) for the first half of the year.

The "current performance" index drops slightly from 53.5 in Q1 to 53.1 in Q2, the report released by Standard Chartered and the Hong Kong Trade Development Council (HKTDC) noted.

Despite the overall decline, production/sales index surged by 4.2 percentage points to 57.1 in Q2, the strongest performance in the year.

Other notable increase includes Fixed asset investment’s which saw a 2-percentage point (pp) increase, and profits by 1.1 pp.

Meanwhile, the “expectations” index fell 4.2% to 52.0 in Q2, the weakest level since Q4 2022. Standard Chartered maintains a positive outlook as expectations are still above 50.

Seven of the eight expectations sub-indices fell, except Capacity utilsation, notably decreasing includes financing scale’s 5.1-pp slump, finished goods/services price’s 4.8-pp drop, and Production/sales’ 2.6-pp decline.

The innovation and technology sector outperformed others with a 6.3-pp and 5.5-pp surge in current performance and expectations index, respectively.

Manufacturing and trading showed short-term resilience driven by orders ahead of US tariff implementation, with a 0.4 and 2.1 percentage points decline in current performance and expectations index, respectively.

Retail and wholesale fell 1.0 and 4.1, respectively, in both the current performance and expectations index, although China launched a consumer goods trade-in program to boost consumption.

Due to sluggish consumption and external uncertainty, Hong Kong saw the biggest drops among GBA cities, with a 9.8-pp and 10.5-pp slump in current performance and expectations index, respectively.

“The findings showed that GBA companies are relatively resilient to US tariffs,” said Irina Fan, Director of Research, HKTDC, “In response to this new era of US trade policy, GBA companies seek to increase domestic sales and expand to key markets in the region, in particular ASEAN.”