The city's private sector economy expanded at its slowest pace in eight months in May despite a solid increase in new orders received compared with the previous month, the latest HSBC survey on purchasing managers released on Friday shows.

The purchasing managers' index (PMI) in Hong Kong came in at an index score of 52.2 in May, down from 52.9 in April.

The May data remains above the boom-or-bust score of 50, which indicates expansion, and represents the 23rd straight month of growth. However, the latest figures signaled the smallest improvement in the business conditions of Hong Kong companies since July 2010.

The HSBC Hong Kong PMI is compiled based on five individual indexes, namely new orders, output, employment, suppliers' delivery times and the stock of items purchased.

Except the index for stocks of purchase, all sub-indexes gained in May. Supported by a higher demand for Hong Kong goods and services, output by Hong Kong companies rebounded in May after a notable decline in April.

Surveyed companies reported winning much more new business from the mainland than a month ago, citing better economic conditions there.

"Demand in Hong Kong remains robust, supported by a resurgence of mainland orders. This rebound has fueled business growth and prompted employers to increase headcounts even as the impact of the new minimum wage legislation kicks in," Mark McCombe, chief executive of HSBC Hong Kong, said in a statement on Friday.

In response to pick-ups in new orders, a number of Hong Kong companies boosted staff numbers in May, driving the city's private sector employment to increase for the fifth month in a row, albeit at the lowest rate in four months.

Cost inflation also gathered pace during the survey period. Climbing labor costs, partly as a result of the newly-introduced minimum wage law, and higher purchasing prices underpinned a substantial rise in overall input costs in May, the second-fastest rate in the series history.

The high inflation rate, according to McCombe, should send a warning signal for the city's economy.

"As inflationary pressures remain high, the overall picture indicates that Hong Kong is more at risk of overheating rather than underheating," he said.

The inflation rate in Hong Kong was last reported at 4.6 percent in April, the highest level in 32 months.

HSBC China PMI released on June 1 showed moderate growth in the mainland's manufacturing sector in May, with the PMI dropping to a ten-month low of 51.6, down from 51.8 in April.

China Daily

(HK Edition 06/04/2011 page2)