Hong Kong's private sector expanded at the slowest pace in 17 months in January, as new orders were markedly less robust than in previous months, a purchasing managers' index showed on Friday.

The slowdown suggests the territory is being affected by easing global economic growth. Companies faced the added strain of mounting inflationary pressure as their costs, including labor costs, continued to rise last month.

They had robust pricing power, and have raised their prices by the biggest monthly margin since such data was first recorded eight years ago, according to the index survey.

The Hong Kong Purchasing Managers' Index (PMI) fell in January to a seasonally adjusted 52.5, its lowest level since August 2006, and down from 55.5 in December.

A reading above 50 indicates growth in activity in the private sector, which has expanded for 37 straight months.

However, the January reading was well below an average monthly reading in 2007 of 54.4. Companies continued to benefit from orders from the mainland but their rate of growth was much weaker than late last year.

The global economic environment has deteriorated in recent weeks. The latest data showing the US economy - Hong Kong's biggest export market after the mainland - expanded just 0.6 percent in the fourth quarter of last year, added to fears it is heading for a recession.

In Hong Kong, slower orders prompted some firms to postpone hiring in January, although overall hiring continued to increase and staff costs rose at the fastest rate since February 2006.

Rising labor costs reflect a tight labor market as the unemployment rate has fallen to 3.4 percent, its lowest level in nearly a decade.

The PMI report said some staff were negotiating higher salaries last month to cover an increase in the cost of living. The PMI, which is put together by UK-based NTC Economics Ltd, surveys 300 private Hong Kong companies in manufacturing, services, retail and construction.

Reuters

(HK Edition 02/02/2008 page2)