RPT-Hong Kong March business activity shrinks at slower pace-PMI

HONG KONG, April 1 - Private-sector business activity in Hong Kong shrank in March for a ninth straight month as orders continued to be hit by weak global demand, although the pace of contraction notably slowed, a purchasing managers' survey showed on Wednesday.

Declining business prompted companies to reduce headcount at the fastest rate since May 2003 when the SARs outbreak hammered the economy, pointing to a further jump in the territory's unemployment rate, which is already at 5 percent.

The Hong Kong purchasing managers' index (PMI) rose in March to 42.7, from 40.6 in February, increasing for a fourth straight month from 38.8 in November, the lowest score in the survey's 10-year history.

However, the index remained well below 50, the dividing line between growth and contraction in business activity, for a ninth straight month.

Hong Kong's economy tipped into recession in the third quarter of last year and a Reuters poll forecast it will contract 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 March, output declined for a ninth straight month as orders dropped, although the pace of decline in orders decelerated sharply. New business from mainland China decreased for a 10th month but, again, the pace of deceleration slowed notably.

Inventories continued to fall as business deteriorated but at the slowest pace in six months.

Companies benefited from declining raw material and other costs for a sixth month running but had to slash the prices they charged as competition for business intensified, the survey shows.

As companies strove to cut costs and the business outlook deteriorated, survey respondents said they had reduced their workforce from February in order to ease excess capacity and to protect operating margins. That pushed down wages and staff costs, which fell for a second month.

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.