Construction work takes place at the Central reclamation project site in Hong Kong. The HSBC Purchasing Managers' Index showed that business activities in the city continued to rise in December for a fifth consecutive month, but at a slower rate. Bloomberg News

HONG KONG: Growth in business activity in Hong Kong has slowed in December, according to the HSBC Purchasing Managers' Index (PMI) released yesterday.

The PMI, a composite index designed to provide timely indications of changes in prevailing business conditions in the Hong Kong economy, fell to 55.2 in December, from 55.9 in November, indicating business expansion was not as fast as the previous month.

PMI readings above 50.0 signal a growth in business activity, while readings below 50.0 signal contraction.

That means business activities continued to rise in December for a fifth consecutive month; however, at a slower rate.

New orders continued to rise markedly in December, extending the run of sustained expansion to six months, although the pace of increase moderated from the 35-month high recorded in November.

Demand from the mainland remained a key driver of new order growth in December, as new orders received from the mainland jumped sharply and at the fastest pace since November 2007.

Janus Chan, an economics analyst at HSBC, said the latest reading showed an improvement of business conditions in Hong Kong in December, despite a marginal easing in the index since November.

"Continuous expansion in new business has resulted in an accumulation of incomplete orders. This has supported a sustained rise in employment," Chan said.

She added that the jump in incomplete orders may also suggest an increase in private investment in the next few months, as the private sector needs to build up operating capacity.

Outstanding business at companies in Hong Kong has increased over each of the last six months, while the latest rise was also the steepest in the series history, suggesting that operating capacity has been under growing strain.

Employment, meanwhile, rose for the third month in a row, but the pace of increase has slowed slightly since November.

Overall input prices continued to increase in December, with cost inflation the highest in 16 months.

HSBC said a further leap in purchase prices was the main driver behind the substantial rise in overall costs, although wage inflation continued to accelerate in December.

Output prices also advanced last month, allowing companies to partially pass on higher purchase prices to customers, the bank added.

The Hong Kong PMI survey, which compares business conditions with those a month earlier, is based on data from 300 private Hong Kong companies in manufacturing, services, retail and construction.

As for the survey's predictive track record, it accurately indicated Hong Kong's descent into recession in the third quarter of 2008.

(HK Edition 01/07/2010 page4)