Hong Kong purchasing managers' index (PMI) in November fell to its lowest level since the SARS outbreak in 2003, amid bleak economic outlook that the city's economy is likely to worsen .

The index fell to a seasonally adjusted 38.8 in November from 43.1 in October, its lowest level since April 2003. It is the fifth consecutive month that the index fell below 50, a dividing line of between growth and contraction.

"The plunge in November PMI is discouraging but not totally surprising, as it is consistent with other anecdotal evidences of a serious recession," Citigroup's economist Joe Lo said. "It confirms the fear of many people and investors that Hong Kong's economy is likely to worsen rather than improve in the near term."

The contraction in private sector business reflected an accelerating global economic downturn and was highlighted by the biggest monthly decline in new orders since the PMI survey was introduced in mid-1998. The new-order sub-index also fell to a record low of 30.3.

The drop in orders was particularly due to weak demand from the mainland and also attributed to declining global demand for Chinese goods. The demand has shrunk as the Euro zone and Japan are in recession and the US economy contracted in the third quarter.

The survey also showed that the staffing levels fell for the first time since December 2004 as lower workloads prompted firms to shed jobs to reduce excess capacity. A number of banks and property agencies have announced lay-offs.

The employment sub-index, which fell to 46.6 in November, indicates that firms have slashed workers and they are going to cut more in the near term.

"The plunge in output, employment and new orders shown by the PMI survey reinforces our forecast of a fall in Hong Kong's real GDP growth in the fourth quarter," Lo said.

Citigroup expects the real GDP to contract 2.6 percent year-on-year in the fourth quarter and a further 4 percent shrink in the first quarter next year.

Hong Kong's economy tipped into recession in the third quarter, for the first time since the outbreak of SARS in 2003. The GDP shrank a seasonally adjusted 0.5 percent from the previous three months after contracting 1.4 percent in the second quarter.

According to the PMI, companies benefited last month from the sharpest decline in their material and other costs since May 2003.

Citigroup's Lo expects very weak Hong Kong economic indicators in the next few months. The rescue measures from various governments may help blunt the impact of global recession and there is still hope that the PMI may edge up in mid-2009, Lo added.

(HK Edition 12/02/2008 page2)