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Standard Chartered Hong Kong SME Leading Business Index rose 0.8 points from the last quarter to 44.1 in the third quarter, reflecting small and medium-sized enterprises' optimism, yet they remain cautious on the improvements of the external environment.
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Tommy Wu, senior economist for Greater China and North Asia at Standard Chartered, said improvement in the third-quarter index benefited from the US-Iran ceasefire, which eased market concerns over geopolitical tensions, as well as the decline in global oil prices.
The survey, conducted by the Hong Kong Productivity Council, showed that among the five component sub-indices, the Global Economy sub-index rebounded by 12.2 points from the last quarter to 33.1 in the third quarter, reaching a similar level to that of the fourth quarter of last year, indicating SMEs' optimism about the improvements in the external economic environment.
The other four sub-indexes remained largely stable, with the Recruitment Intentions and Investment Intentions indexes holding at 50 or above. The Business Conditions and Profit Performance indexes remained below 50, reflecting that SMEs remain cautious about their short-term business performance and profit outlook.
Wu noted that amid the recent escalation of conflict in the Middle East, the market is taking a wait-and-see approach regarding potential impacts on oil prices or supply. He believes that the Middle East situation will put pressure on Hong Kong's SMEs and overall exports, but he remains more optimistic compared to the previous quarter, as the supply chain has undergone certain adjustments over the period.
Due to base effects, Wu expects Hong Kong's economic growth rate in the second quarter to be slower than in the first quarter, while maintaining the full-year economic growth forecast of 4.3 percent. He projects global investment in artificial intelligence will continue for some time, boosting Hong Kong's re-export performance. The economy will also benefit from the continued increase in visitor arrivals and the rise in the property market.
He also mentioned that he does not expect the U.S. Federal Reserve to raise interest rates this year, though market sentiment suggests it will in October. Wu expects Hong Kong's interest rate to remain largely at current levels over the next six months.
