Hong Kong’s private sector business conditions improved at the start of the fourth quarter, driven by a solid increase in new business due to stimulus policies in the Chinese mainland and greater tourism interests.

The headline seasonally adjusted S&P Global Hong Kong SAR Purchasing Manager’s Index posted a reading of 52.2 in October, up from 50 in the previous month, signaling the index’s first improvement since April.

The improvement was mainly attributed to greater demand in incoming orders which increased at their fastest pace in 18 months.

Services firms recorded the fastest growth in new business orders.

Companies increased their purchasing activity along with higher new business inflows to the highest rate since early 2023.

“The improvement in conditions brought nascent signs of growth for the region, with firms also raising purchasing activity and inventory holdings in a sign that activity has started to pick up again,” said Pan Jingyi, economics associate director at S&P Global Market Intelligence.

But the economist cautioned that despite a lack of capacity pressure, employment levels declined for a sixth straight month attributed to resignations and non-replacement of job leavers.

ALSO READ: Hong Kong records 52.4% jump in property sales

The index also showed input cost inflation climbed to the highest since February due to higher transport costs. Firms in the manufacturing and wholesale and retail segments experienced the quickest rises in input costs. Despite rising input price inflation, some firms chose not to pass on higher cost burdens in full to clients and even offered discounts in some instances to support sales.

“We have not yet to see a turnaround in business sentiment even though the level of pessimism eased to a near one-year low. Margin pressures will also need to be monitored with firms continuing to partially absorb costs despite rising input price inflation,” Pan added.

Hang Seng Bank took a cautiously optimistic stance on Hong Kong’s growth, forecasting a 2.8 percent expansion for the year.

“Foreign trade has supported Hong Kong’s economic growth this year. A new round of mainland stimulus measures would elevate financial market sentiment, potentially leading to higher asset prices and, consequently, a positive wealth effect on consumption. Boosting hopes for stronger consumer spending in turn may support a continuing growth in the economy,” Hang Seng Bank Chief Economist Thomas Shik said.

ALSO READ: Personal Loan Guarantee Scheme’s default rate rises to 10%, risk controllable

But the economist cautioned that uncertainties surrounding geopolitical tensions, global trade policy and supply chain disruptions persist.

S&P Global Ratings predict Hong Kong’s economy is likely to grow 2.5 percent this year, weighed down by higher interest rates and a strong currency, following the gain of 3.2 percent last year.

“Hong Kong’s economic recovery is aided by the pickup in population size and further normalization of cross-border travel. External demand should bounce back after a contraction last year while domestic demand is likely to decelerate from the strong rebound of last year,” S&P Global said in its research report.

“Over the next three to four years, initiatives such as Guangdong-Hong Kong-Macao Greater Bay Area, and various financial connection programs linking Hong Kong’s financial and service sectors with the Chinese mainland, will be important for boosting the city’s economic growth,” the report added.