Business conditions in the Hong Kong Special Administrative Region’s private sector improved in December, while the output growth momentum diminished with a subdued export outlook due to low external demand.

The headline seasonally adjusted S&P Global Hong Kong SAR Purchasing Manager’s Index posted 51.1 in December, down from 51.2 in November, signaling that business conditions improved for a third successive month, though at the softest pace in the current sequence.  

The index is compiled by S&P Global from the responses of around 400 private sector companies spanning from the manufacturing, construction, wholesale, and retail and services segments. The index is based on the measurement of output, new orders, employment and stocks of purchases.

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Improving domestic client interests and customer bases supported greater inflows in new work, which spurred a third monthly, albeit marginal, increase in business activity, with wholesale and retail firms reporting the most pronounced rise in activity.

However, rising competition and potential trade barriers dampened the outlook for sales and employment levels within the city’s private sector companies.

Due to rising raw material costs, average input prices increased further in December, though at the softest pace in nearly four years. Rather than sharing the additional cost burdens with clients, Hong Kong SAR firms lowered their selling prices for the first time in seven months with the aim of supporting sales.

“The latest S&P Global Hong Kong SAR PMI indicated that growth was sustained at the end of last year,” said Pan Jingyi, economics associate director at S&P Global Market Intelligence. “Subdued external demand was a key dampener for growth in the closing month of 2024, with firms highlighting concerns over the prospects for trade with the potential for US tariffs. This may remain a key driver of sentiment and economic conditions in the new year.”

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Gary Wan Ka-wai, principal economist and strategist at Dah Sing Financial Holdings, said he expects Hong Kong’s economic growth to be 2.8 percent this year as the trade relationship between China and the United States may become strained again.

“Due to the change in consumption patterns, the local demand has not improved. At the same time, the local export sector is also facing a lot of pressure,” the principal economist said.

But Wan added that the Central Economic Work Conference sees the need to vigorously boost consumption as its top priority, and the central government is also expected to introduce more specific measures to stimulate domestic demand on the Chinese mainland.

“The strong economic performance of an emerging Asia is (expected) to offset some negative factors exerted on Hong Kong’s export performance,” Wan said.

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The Hong Kong General Chamber of Commerce said it estimates that Hong Kong’s economy will expand 2.3 percent this year, with significant internal and external challenges ahead.

But the HKGCC added it believes that the launch of new mega infrastructure projects, such as the Three-runway System and the Kai Tak Sports Park, are poised to raise long-term growth and enhance the city’s competitiveness.