HONG Kong’s private sector activity contracted in July for the first time this year, providing further proof of the slowdown in the financial hub’s post-Covid recovery.

The S&P Global Purchasing Managers’ Index (PMI) fell to 49.4 last month from 50.3 in June, slipping below the 50 mark that separates expansion from contraction for the first time since December. Overall optimism slipped to the weakest since November, according to a statement accompanying the data.

The boost from reopening after the pandemic “appeared to have been exhausted into the second half of 2023”, said Jingyi Pan, economics associate director at S&P Global Market Intelligence, in the statement. “A renewed decline in new orders dragged business activity into contraction.”

Warning signals are flashing for Hong Kong’s economy, which contracted for three years out of the past four. Gross domestic product rose just 1.5 per cent year-on-year in the second quarter – far weaker than the 3.5 per cent estimated by economists and slower than the first quarter’s 2.5 per cent pickup.

While spending data has held up for now, Financial Secretary Paul Chan said this week that residents are showing more muted spending habits, with some consumers taking their money to neighbouring Shenzhen, a cheaper tourist and shopping destination.

Economists from United Overseas Bank, Capital Economics, Citigroup and Natixis have downgraded their forecasts for Hong Kong’s growth this year following the worse-than-expected GDP data.

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S&P’s Pan flagged the renewed aggravation of price pressures within Hong Kong’s private sector as another concern, adding that “this may further dampen business confidence and affect demand for Hong Kong SAR goods and services in the coming months”. BLOOMBERG