The S&P Global Hong Kong purchasing managers index rose from 48.6 in April to 50.4 in March, marking a return to expansion territory for the first time since March.
The modest growth reflects that Hong Kong's business environment has recovered, while the improvement still largely falls short of the increases seen at the beginning of the year, according to the rating agency.
In May, new export orders recorded a substantial expansion at a faster pace, while the domestic demand remained weak, weighing on the total sales, S&P Global said.
Meanwhile, the increase in purchasing prices hit a four-and-a-half-year high, indicating the cost pressure on companies' operations. Among them, surging raw material prices dominated the growth, particularly fuel-related products.
Regarding the selling prices, most of the firms hiked prices to pass the costs on to customers, leading to a continued rise in the selling prices, while some companies also offered discounts to boost sales.
S&P said that supply performance deteriorated for the first time in three months, as the Middle East war caused shipping delays, leading to longer delivery times. On the other hand, purchasing inventories continued to rise, but the pace of expansion slowed to a 12-month low.
Looking ahead, most private firms stayed downbeat view, but the pessimistic sentiment has weakened to the lowest base in three months, albeit relatively at a high level.
The business outlook is impacted by factors, including higher prices, tax policies, and geopolitical risks, the surveyed firms said.
