Hong Kong’s private sector eked out expansion for the fourth consecutive month in January, but its pace slowed to its weakest since September 2024 as marginal gains in output and new work were offset by tariff-driven weakness in external demand.
The S&P Global Purchasing Managers’ Index (PMI) edged down slightly to 51.0 in January from 51.1 in December, remaining above the 50-mark that separates expansion from contraction.
Wholesale and retail emerged as the best-performing segment in January, while sharp contractions in manufacturing production and construction output weighed on overall growth, according to a statement accompanying the data.
“Weak external demand was the main constraint in January,” said Tim Moore, economics director at S&P Global Market Intelligence.
While new orders rose marginally, the rate of growth was significantly weaker than the 18-month peak recorded in October 2024. Survey respondents attributed this to “subdued business and consumer spending”.
New business from the Chinese mainland fell at its sharpest rate since April 2022, while export sales contracted for the third consecutive month, marking the steepest decline since September 2024.
Survey participants reported a cautious willingness to spend among clients, citing growing concerns about the near-term global economic outlook, particularly the effects of US tariffs on international trade.
On Feb 1, US President Donald Trump announced an additional 10 percent tariff on goods originating from the Chinese mainland and Hong Kong, effective Tuesday. The new measures also removed the de minimis exemption for shipments valued at $800 or less imported by a single individual in a day.
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According to the Hong Kong Trade Development Council, US imports from Hong Kong totaled $4.1 billion in 2023, incurring $58 million in import duties. Under the new 10 percent tariff, Hong Kong’s exports to the US would have faced an additional duty burden of $411.6 million last year.
January data also indicated a renewed increase in staffing levels within Hong Kong’s private sector. This was only the second increase in employment over the past nine months, fueled primarily by stronger hiring activity in the services, wholesale, and retail industries.
Despite the uptick in hiring and a sustained increase in total new work, Hong Kong firms “remain pessimistic about the year ahead business outlook,” said Moore.
“Subdued business activity expectations were linked to a range of headwinds, including competitive pressures, squeezed margins, and heightened global economic uncertainty,” he added.
The Bank of East Asia’s Chief Economist Ricky Choi highlighted that tariffs remain an uncertain factor. However, observing the US’s open attitude during negotiations with Mexico and Canada, it remains to be seen whether Hong Kong will face the impact of high tariffs throughout the year.
On a positive note, Choi said he anticipates that private enterprises will remain in an expansionary phase during the first quarter of this year given the global monetary easing cycle.
Although the US Federal Reserve paused to reduce interest rates in January following three consecutive rate cuts, Choi said there is still room for further cuts this year that would help improve market sentiment.
Looking at the broader economy, Thomas Shik, chief economist at Hang Seng Bank, projected that Hong Kong’s growth this year will be comparable to last year’s 2.5 percent increase.
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Shik said while the external environment remains increasingly complex, factors such as the stabilization of the mainland economy and the central government’s policy support could assist Hong Kong’s economy.
