The business climate in Hong Kong's private sector deteriorated in May after a brief period of improvement, as per the latest S&P Global Hong Kong Purchasing Managers' Index (PMI) data released on Wednesday. The headline PMI dropped to 49.2 in May, down from 50.6 in April. A reading below 50 indicates a contraction in business activity. The latest decline, while marginal, marks the fastest deterioration since October 2023. The decline was driven by a drop in new orders, with the rate of contraction being the strongest since September 2022. This affected output and backlogs. Respondents cited increased competition and weak economic conditions as reasons for the sales decline. The construction sector was most affected by the drop in new business, while manufacturers experienced a sharp decline in output. Export conditions also worsened in May. New business from mainland China and overseas markets fell at a solid pace, reflecting weak underlying demand. In May, despite a decrease in new orders, companies continued to reduce backlogs for the eighth month in a row. Employment levels slightly decreased due to lower demand. Purchasing activity increased for the first time since August as some firms built up stock to avoid delays from longer lead times. Input costs increased slightly in May due to higher wages from salary adjustments. Despite this, inflation for input costs was modest, reaching its lowest level since February 2021. On the other hand, selling prices decreased for the second consecutive month as the Hong Kong dollar strengthened. To stimulate sales, businesses absorbed cost hikes and reduced selling prices. Download
