People wearing face masks walk in the Central area of Hong Kong, July 27, 2020. (WANG SHEN/XINHUA)
Hong Kong’s private sector expanded at the fastest pace in seven and half years, reflecting better economic conditions amid stabilizing COVID-19 conditions.
The headline seasonally adjusted IHS Markit Hong Kong Purchasing Managers’ Index rose to 53.3 in August, up from 51.3 in July, representing an increase for the seventh consecutive month and the strongest expansion seen since February 2014.
The survey is conducted by global financial information services firm IHS Markit which interviewed around 400 private sector companies from the manufacturing, construction, wholesale, retail and services sectors.
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Output and new orders both increased for the fifth straight month and at rates which were multiyear highs, fueled by the pickup in business activity with better economic activity amid low COVID-19 infections, and the boost from the distribution of electronic consumption vouchers. Overall business confidence improved in August.
On a positive note, economists expect local consumption to see further recovery given the faster-than-expected decrease in jobless rate, the rising vaccination rate and the electronic consumption vouchers
However, foreign demand, including the volume of new work from the Chinese mainland, remained weak, falling for the third month in a row in August, due to the lingering COVID-19-related mobility restrictions.
“Supply-chain constraints nevertheless continued to feature as a theme in the survey. Supplier delivery times further lengthened, which alongside higher input costs led to output charges rising at an elevated rate in August. Some signs that these constraints were crimping demand and output were also noted, which is worth focusing on,” said Pan Jingyi, economics associate director at IHS Markit.
On a positive note, economists expect local consumption to see further recovery given the faster-than-expected decrease in jobless rate, the rising vaccination rate and the electronic consumption vouchers. The resultant improvement in business conditions may boost fixed investments as well.
However, some other economists are more cautious.
“Going forward, the support from fiscal stimulus and external demand may have peaked as the government looks unlikely to roll out huge relief measures while the developed countries have been reopening the economy. The ongoing containment measures remain a drag on economic recovery,” OCBC Wing Hang Bank economist Carie Li Ruofan warned. “We keep our gross domestic product growth forecast unchanged at 5 to 6 percent for 2021 on (the) assumption of (a) partial border reopening in the fourth quarter of this year.”
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United Overseas Bank’s head of global markets for Greater China Stephen Li Kwok-kei added: “While the vaccination program is on track, we are still mindful of the challenges that the economy is facing, such as the weak labor market and decline in median household income, which will impede a stronger consumption rebound this year.”
The Singaporean-based bank upgraded its growth forecast for the 2021 full-year from 5 percent to 6.7 percent.
The government in mid-August revised the economic growth forecast for 2021 upward to 5.5 percent to 6.5 percent from the previous 3.5 percent to 5.5 percent.