HSBC: Index higher despite slight dip in new orders, output growth

The city's Purchasing Managers' Index (PMI) rose to a nine-month high of 55.2 in January despite slightly weaker new order and output growth, an HSBC report released on Monday showed.

As a measure of the business conditions in private sector economy, the index is compiled based on five sub-indices: new orders, output, employment, suppliers' delivery times and stock of goods purchased. A reading above 50 signals expansion, while that below 50 points to contraction.

The latest reading indicated "a marked strengthening of operating conditions" in Hong Kong's private sector economy, according to the report. The index edged higher to 55.2 in January from 55 in December. New orders and output continued to expand, albeit at a slower pace.

The new orders index eased off to 58.1 in January from 58.7 in the previous month, whereas output dropped slightly to 57.8 from an 11-month high of 58.9 in December. But both represented above-trend growth, according to the report.

"Hong Kong's private businesses are still raking it in with new orders and output both expanding at historically high levels," said Donna Kwok, Greater China economist at HSBC.

As business conditions continued to improve for the city's private sector, progress was also seen in private sector employment. At 51.1, the January employment index was the first gain in three months compared with 49 in December and 49.2 in November.

However, Kwok cautioned against mounting inflationary pressure, which she said may be starting to weigh heavier on the margins.

"Hong Kong's private sector is still going strong, but inflationary pressure continues to build on the back of wage and commodity price inflation," she said.

The purchasing prices index, for the 19th month running, stood at a high of 71.1 in January. At the same time, however, wage inflation hit a three-year high, sending the staff costs index to 56.3 in January up from 55 in December. Nevertheless, higher wages can be a boon to the economic growth as it boosts private consumption, Kwok added.

Stoked by rising rents and food prices, Hong Kong's inflation accelerated at its fastest pace in December. According to figures released by the Census and Statistics Department, overall consumer prices jumped 3.1 percent year-on-year in December, up from 2.9 percent in November.

"Solid economic growth has led to inevitable inflationary pressures in Hong Kong," Mark McCombe, chief executive of HSBC in Hong Kong, said at the release of the PMI report. He expected the city's inflation to gain traction in 2011 but believed that economic growth will gather momentum at the start of the year on the back of "robust domestic and global demand".

China Daily

(HK Edition 02/08/2011 page2)