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Standard Chartered Hong Kong SME Leading Business Index dropped slightly by 0.7 points from the previous quarter to 44.8 in the fourth quarter, reflecting improved confidence among small and medium-sized enterprises on business prospects while remaining cautious.
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The best performers among the five component sub-indices are “business condition” and “profit margin”, rising 1.8 points and 2.1 points to 42.3 and 39.9, respectively.
“Investment sentiment” edged up to 50.8 points, and “recruitment sentiment” slipped slightly to 50.1 points, reflecting SMEs’ cautious view of the external economic outlook.
SMEs who expected an increase in raw material costs this quarter rose from 42 percent the previous quarter to 53 percent in the fourth quarter. Those who expected a pay rise dropped 14 percent, reflecting easing cost and wage pressures.
On the other hand, 20 percent of SMEs plan to raise goods and services costs, up one percentage point from last quarter.
Tommy Wu, senior economist for Greater China and North Asia at Standard Chartered, estimated Hong Kong’s economic growth at 4.3 percent this year, then slowing to 2.7 percent next year.
He said he is cautiously optimistic about next year’s performance, noting that SME confidence in business and profit prospects has improved for two consecutive quarters, supported by better short-term sales and profit outlooks, while the ongoing global artificial intelligence super-cycle is also boosting the city’s external trade.
Wu noted that the market currently worries that AI investment is growing too fast and related companies are overvalued, which could cause short-term volatility in the sector. However, US tech giants continue to invest heavily in AI infrastructure and data centers, and such high-level investment is expected to persist for several years.
AI investment has not yet been affected by rising interest rates and energy prices, and financing and export growth remain rapid, which should support Hong Kong's economy and exports next year, Wu added.
Separately, Wu said the US Federal Reserve may raise rates once more in December, with the market expecting two hikes next year.
He said there are still uncertainties around inflation and interest rates, as energy prices are at multi-year highs, with damage to energy infrastructure in the Middle East and Russia, and as economies may begin replenishing depleted oil reserves next year.
Wu expects Hong Kong may follow the US in raising rates, with fixed investment and real estate facing downside risks.
He believes business confidence in the retail, accommodation, and food services sectors will improve, supported by the continued recovery of inbound tourism. As the trend of northbound consumption eases and spending habits gradually adjust, pressure on SME businesses has already eased.
