The city's private sector economy expanded for the eighth consecutive month in March, with the expansion pace accelerating from the previous month, according to the latest survey by HSBC on purchasing managers.

The HSBC Hong Kong Purchasing Managers' Index (PMI) inched slightly higher to 54.9 in March from 54.6 in the previous month.

A reading above 50 signals an expansion in the private sector and improvement in the business conditions, while a reading below 50 indicates deterioration and contraction.

"The HSBC Hong Kong PMI has been rising for eight consecutive months, a sign that the economic recovery in Hong Kong is still gaining momentum," said Mark McCombe, chief executive of HSBC in Hong Kong.

Rising volumes of incoming new business drove the further improvement of business conditions within the private sector, the survey notes.

The pace at which new business grew was significant, and slightly stronger than in the previous survey period. The rise in overall new work was supported by another record increase in new business received from the mainland, where the ongoing improvement in economic conditions boosted demand.

"Hong Kong is in a most advantageous position to benefit from increased consumer activity in the Chinese Mainland. We expect strong demand from the mainland to lift Hong Kong's GDP growth to over 8 percent year-on-year in the first quarter this year, the strongest growth in four years," McCombe said.

Reflective of the sustained rise in new business, output increased markedly during March. Activity at private sector companies in Hong Kong has now expanded in each of the last nine months.

With activity increasing, local companies continued to expand their operating capacity, resulting in a rise in employment for a sixth successive month. However, the rate at which staffing levels increased was modest, and weaker than in the previous survey period.

Despite expanding operating capacity, a further rise in backlogs of work suggested that capacity continued to be pressured. The increase in outstanding business was significant, and faster than that reported in February.

March data signaled an eighth consecutive rise in purchasing activity, which reflected the sustained increase in output. However, the rate at which purchasing rose was weaker than the growth in output, and was broadly unchanged since February. This was underpinned by a further rise in stocks of purchases, indicating that the latest increase in purchasing activity was sufficient to meet output requirements.

Suppliers' delivery times lengthened for a sixth month in succession during March, as increased input buying put pressure on operating capacity at vendors.

Meanwhile, input cost inflation continued, with limited pricing power restricting the extent to which output prices were increased, the survey notes.

Overall input costs increased substantially in March, driven by rises in both wages and purchase prices, particularly the latter.

Output prices increased for a fifth consecutive month and at the fastest pace since August 2008, although inflation remained substantially weaker than that of input costs.

China Daily

(HK Edition 04/09/2010 page3)