Hong Kong's PMI fell to 51 in July, with the economy experiencing a moderate improvement for three consecutive months.

S&P Global announced that in July, Hong Kong's Purchasing Managers' Index (PMI), seasonally adjusted, fell from 52 last month to 51, remaining above the neutral level of 50. This reflects an improvement in the business environment for three consecutive months, although the increase in business activity is modest. S&P noted that the slight decline in the PMI index partly reflects a slowdown in order growth among Hong Kong's private enterprises, with expansion rates much lower than before the outbreak of the Middle East conflict and overall remaining mild. Respondent companies reported that they enhanced promotional activities, increased customer confidence, and implemented competitive pricing strategies to stimulate sales this month. However, the local economic slowdown is putting pressure on overall order growth. The pace of market demand expansion from mainland China has remained stable compared to June, which is noticeable, but new export business in July showed no change month-on-month after three months of growth. Nonetheless, overall orders continue to maintain an upward trend, supporting companies in further expanding their businesses, with the production increase being the highest since March. Although export demand remained stable on a month-to-month basis and overall order growth fell short of June's levels, the volume of new orders received by companies continued to grow for three consecutive months. The overall increase in input costs and selling prices has narrowed simultaneously, indicating a cooling of inflationary pressure. However, the slowdown in demand growth has led companies to reduce purchases, tighten inventory, and even cut staff, with the extent of job cuts being the largest since August 2023. Regarding the business outlook for the coming year, companies are more cautious than last month, particularly in their outlook for the local economy, with clear concerns expressed. Purchasing activity has decreased, with the decline being the most significant since September last year. Respondent companies generally believe that the slowdown in demand is the main reason, leading to tightened procurement. In this context, surveyed firms are striving to reduce inventories, resulting in a drop in inventory levels. Additionally, suppliers have extended delivery times for three consecutive months, although the extent of delays has eased compared to June. Latest survey data also shows that inflationary pressures in Hong Kong's private economy continue to cool. Fundamental data indicate that the increase in purchasing prices was higher than in June, but wage costs only rose slightly, marking the lowest increase in five months. As the third quarter begins, companies have narrowed their price increases compared to last month, in line with the overall cost trends, resulting in the smallest increase in four months, which is just moderate; moreover, several companies reported lowering prices to stimulate sales. When assessing the business outlook for the next year, companies expressed a more pessimistic view in July compared to the previous month. Many companies are concerned about the local economy and high inflation, leading them to have a bleak outlook for the future. Usamah Bhatti, an economist at S&P Global Market Intelligence, stated that Hong Kong's business environment continues to improve into the early second half of 2026, with growth in output being the fastest since March. However, the overall expansion rate of new orders has slowed, which partly reflects the ongoing impact of the conflict in the Middle East on the global economy, causing export sales to stagnate. The overall increase in input costs, employee costs, and selling prices has also narrowed, indicating early signs of cooling inflationary pressure in the first quarter of the third quarter, which is encouraging; however, the increase in purchasing prices remains higher than in June, still significant, and should not be overlooked.