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HK business activity in Feb shrinks at slower pace- PMI

Published: 01 Mar 2009 17:57:43 PST

HONG KONG, March 2 - Private-sector business activity in Hong Kong continued to shrink in February as the territory suffered the effects of weak global demand, but the pace of decline eased slightly for a third month, a purchasing managers' survey showed on Monday.

Sharply declining new business, and deteriorating operating margins, prompted companies to step up job cuts, pushing down staff costs for the first time since December 2003.

The Hong Kong purchasing managers' index (PMI) rose for a third straight month, to 40.6, but remained close to November's level of 38.8, the lowest score in the survey's 10-year history. The index was below 50, the dividing line between growth and contraction in business activity, for an eighth straight month.

Hong Kong's economy tipped into recession in the third quarter of last year and the government last week forecast it would contract 2-3 percent this year, its worst performance since 1998 at the height of the Asian financial crisis.

As a trade and financial hub the territory is vulnerable to the global economic downturn and is unlikely to recover until the U.S. economy starts to turn around, analysts say.

In February, output declined for an eighth straight month as orders dropped, although the pace of decline in orders decelerated slightly for a third month. Companies benefited from declining raw material and other costs for a fifth month running but had to slash the prices they charged at the fastest pace since May 2003 amid intensifying competition for business.

As companies strove to cut costs and the business outlook deteriorated, 13 percent of survey respondents said they had reduced their workforce from January.

Declining business encouraged companies to keep running down inventory, with 20 percent of respondents reporting a drop in inventory since January.

The PMI survey compares business conditions with a month earlier, based on data from Hong Kong companies across industries including manufacturing, services, retail and construction.