SME business confidence hits three-year low

Business | Avery Chen 26 Jul 2019

Business confidence of Hong Kong's small and medium enterprises fell to a three-year low in the third quarter this year.

The "Standard Chartered Hong Kong SME Leading Business Index" by the Hong Kong Productivity Council dropped 7 points to 39, and was mainly affected by ongoing Sino-US trade war but less influenced by current political uncertainties.

The survey was conducted in June, interviewing 812 local SMEs. All five sub-indices of the overall index dropped simultaneously. Global economy saw the biggest decline, down 14.4 points to 12.1, while investment sentiment fell 6.1 points to 43.6. Business condition (36.4) and profit margin (34.8) respectively decreased by 9.2 and 7.5 points, only recruitment sentiment (50.6) maintained positive.

Kelvin Lau, senior economist of Standard Chartered Hong Kong said, the three-year low data is worrying, but this data did not reflect the impact of the current Hong Kong political chaos as SMEs' business has been mostly affected by Sino-US trade war and global economy.

Lau said it is difficult to estimate the impact of current political unrest on the economy. Compared with the 2014 "Umbrella Movement" protests, he said the economic fundamentals are weaker than 2014.

"We welcome the agreement between Washington and Beijing at the latest G20 meeting to resume trade negotiations and not raise tariffs further, we believe this should reduce further downside risk from trade tensions. However, so long as existing punitive tariffs remain, global growth and inflation expectations are likely to stay weak, meaning little momentum for the Hong Kong economy to recover in the coming quarters," he said.

When being asked about the trend of international trade negotiation, 44 percent of the surveyed SMEs expressed pessimism, much higher than last quarter's 17 percent.

"The record low 'investment sentiment' component reflects poor appetite among SMEs to expand their business," Lau said. He warns the investment sentiment may be relatively weak in the second half.

As for industries, the three key sub-indices, namely import/export trade and wholesale, retail and manufacturing were all seen to drop. The declines confirm negative spillover from external trade headwinds to domestic demand, Lau said.

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