PMI sinks to lowest since 1998

GDP is expected to contract at an annual rate of nearly 5%.

Hong Kong’s private sector is at a dire state as the purchasing managers’ index (PMI) sunk to a record low of 33.1 in February, from 46.8 in January, according to a report by IHS Markit.

The city is being pulled into a deepening recession on the back of the one-two combo of the political protests that took place in the past few months, in which businesses had yet to recover, and now the COVID-19 outbreak, which waned further on business and consumer confidence.

Latest data broadly indicate GDP contracting at an annual rate of nearly 5%, suggesting that Hong Kong could be heading into a steeper recession in the first half of the year, noted IHS Markit economist Bernard Aw.

Measures taken in response to the Covid-19 situation, and general fear of being infected, saw business activity and new sales sinking at a record pace. Notably, orders from mainland China for Hong Kong goods and services plunged by the greatest extent since data for this variable were first available in March 2005.

Purchasing activity and inventories were cut back further and at faster rates to save on operating expenses as firms struggled to remain in business.

Firms also reduced staff numbers, with the rate of job shedding accelerating to the steepest for over 18 years.

The combination of lower purchasing and reduced headcounts contributed to the largest decline in overall input costs since the end of 2008.

Hong Kong private enterprises meanwhile turned to offering discounts to boost sluggish sales. Prices charged for Hong Kong's goods and services were reduced at a pace not seen since October 2001.

Confidence about the year-ahead outlook plummeted in the city to an all-time low, with a majority of firms anticipating lower future output amidst expectations that the coronavirus situation will persist in coming months.

“Despite the recently announced expansionary budget and massive fiscal relief measures, which include $120b worth of cash handouts, tax breaks and low-interest business loans, the severe disruptions from the virus outbreak are still expected to weigh heavily on economic activity. [We] estimate the Hong Kong economy to shrink by an annual rate of 1.3% in 2020. That said, further GDP downgrades are possible should the situation continue to worsen in coming months,” concluded Aw.