SMEs are not throwing in the towel just yet

These businesses are getting more confident of economic and business growth.

Hong Kong's SMEs are putting away their "Business is closed" signs if the impressive improvement in Standard Chartered’s SME index is anything to go by. The index has risen to a seven-quarter high of 45.6 in Q2-2017. The 3.7-point jump is also the largest q/q improvement since the index was launched in Q3-2012, thanks to a stellar GDP growth rate of 4.3%.

According to Standard Chartered's senior economist Kelvin Lau, only 19% of the SMEs say the economy is in the midst of a downturn, with another 66% see lingering instability, at worst. "Among these two categories, only 10% see a risk of shutting down their businesses if the economic challenges persist for a year. This is an improvement from 14% six months ago and 20% at the same time last year. 61% see no concern over business viability, versus 25% and 47% in Q2 and Q4-2016, respectively," he says.

The prospect of business failure seems to be receding as both external and domestic economic figures are finally picking up. Hang Seng Bank says that Hong Kong's 4.3% Q1 GDP growth is the highest rate since the second quarter of 2011 and far exceeding market expectations of 3.7% and the previous quarter’s growth rate of 3.2%. "Private consumption growth rose from 3.6% in the fourth quarter last year to a six-quarter high of 3.7%, while growth in building and construction jumped from 7.5% in Q4 2016 to 9.6% in the first quarter this year, the fastest pace since the second quarter of 2015," it says.

Hang Seng Bank's acting chief economist Thomas Shik adds, "In the next few quarters, the rate of GDP growth may slow due to a high base the year before, but the underlying picture is that the overall fundamentals are better in 2017 than in 2016."

He forecasts that with the first quarter showing higher consumption and investment and increased trade flows, full-year GDP growth could hit 2.8% — a figure near the upper end of the government’s estimate of 2% to 3%. "In the next few quarters, the rate of GDP growth may slow due to a high base the year before, but the underlying picture is that the overall fundamentals are better in 2017 than in 2016."

SMEs are still cautious in fully embracing the optimism as they may not be enough to deliver a multi-year economic boom. Standard Chartered's Lau notes, "It is however indisputable that improved sentiment is already giving economic growth a much-needed short-term boost.”