Standard Chartered SME Index for Q1 2017 at 41.9 Cautious Outlook Prevails, Despite Positive Sentiment in ICT Sector

The "Standard Chartered Hong Kong SME Leading Business Index" (Standard Chartered SME Index) for the first quarter of 2017 has edged down 0.6 to reach 41.9. Releasing the findings today (24 January 2017), the Hong Kong Productivity Council (HKPC) noted that the Index failed to keep up the growth momentum in last quarter and has been remaining below the 50 threshold for two years. With a prevailing fragile confidence, SMEs are cautious about the economic outlook of Hong Kong and their business performance in 2017.

The Information and Communications Technology (ICT) sector is a relatively bright spot, with over half of the respondents expecting business growth this year. However, 20% of SMEs expressed dampened confidence with the new US President on board.

Sponsored by Standard Chartered Bank (Hong Kong) Limited ("Standard Chartered Hong Kong"), the quarterly survey features an Overall Index comprising five Sub-Indices. In this quarter, "Staff Number" (52.6) is the only Sub-Index that remains positive, while the reading for "Investments" (46.3) is similar to last quarter's. The Sub-Indices for "Sales Amount", "Profit Margin" and "Global Economic Growth" all go down, registered at 38.8, 35.0 and 23.9 respectively.

For sectorial findings, all the three major Industry Sub-Indices fall below 40 again, swinging back to the level of the third quarter last year. Dragged down by the "Sales Amount" and "Profit Margin" readings, the Manufacturing (39.2) and Retail (38.9) Sub-Indices dropped 1.1 and 1.6 respectively. Retailers may have lowered their business prospection of the Lunar New Year due to unsatisfactory sales performance during the Christmas period. The Import, Export & Wholesale Sub-Index, on the other hand, has rebounded to 39.1, up 2.4; but uncertainty prevails as the Sub-Index fails to reach above 50.

Mr Kelvin Lau, Senior Economist of Standard Chartered Hong Kong, said, "Both the Manufacturing and Retail Sub-indices are now back to the second-lowest levels in more than four years, suggesting low expectation among our SME respondents in seeing quick turnarounds in external and domestic demand. This echoes our view that 2017 is likely to be a year full of global geopolitical uncertainties. We expect steady China growth, although the need to contain financial risks could pose headwinds. The silver-lining is that increased SME cautiousness appears to be more cyclical than structural in nature for now: respondents are generally still looking to hire, and that investment sentiment has been steady albeit at weak levels."

This survey also gauged the views of SMEs on the change in the US presidency. 20% of the surveyed companies expressed that their business confidence have weakened, mainly due to "worries about changes in US trade policies" (57%), followed by "intensifying foreign exchange volatility" (23%) and "uncertainty in interest rate hikes" (20%).

In addition, the survey also gauged the views of SMEs on Hong Kong's economic outlook and their business performance in 2017. Those expect the economy will go down are on a par with those think it remains unchanged, each group accounting for 45%; while only 10% believe the economy will brighten up. In regard to business performance, 21% of the respondents anticipate a growth, with an average 10% increment; 29% anticipate a drop, with an average decline of 11%. The ICT sector shows the strongest confidence, with 52% of respondents expecting business to grow by 15% on average. The Retail industry holds the gloomiest view with 40% retailers expect business to fall by 12% on average.

Mr Gordon Lo, Director (Business Management) of HKPC, said, "In the past quarter, global issues such as the depreciation of renminbi (RMB) and Japanese yen, the strong US dollar, the US presidential transition, as well as the resumption of interest rate hikes, were weighing on the business sentiment of local SMEs. The thriving ICT Industry is a bright spot which reflects a high demand for IT solutions. SMEs intend to adopt innovative technology solutions for value creation can apply for the ‘Technology Voucher Programme' recently launched by the HKSAR Government to enhance competitiveness."

Conducted from mid to late December 2016, this survey successfully interviewed 821 local SMEs. To download a report of the "Standard Chartered Hong Kong SME Leading Business Index", please visit the website: www.smeone.org.

For more details about the Index, please contact HKPC's Kinson Leung at tel. (852) 2788 5795 or email: kinsonleung@hkpc.org. For other media enquiries, please contact Chloe Chau at tel. (852) 2788 6158 or email: chloechau@hkpc.org.

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Mr Jonathan Ho
General Manager
Corporate Communication and Marketing
Tel: (852) 2788 6390
Fax: (852) 2788 5056
Email: jonathanho@hkpc.org
Website: www.hkpc.org

24 January 2017

Mr Gordon Lo (centre), Director (Business Management) of HKPC, announces the survey results of the "Standard Chartered Hong Kong SME Leading Business Index" for the first quarter of 2017, accompanied by Mr Wilson Wong (left), General Manager (IT and Business Process) of HKPC; and Mr Kelvin Lau, Senior Economist of Standard Chartered Hong Kong.