Hong Kong's private sector returned to growth in May, supported by stronger export demand and a modest increase in new orders, S&P Global said Wednesday.
The seasonally adjusted S&P Global Hong Kong SAR Purchasing Managers' Index rose to 50.4 in May from 48.6 in April.
The reading moved back above the 50-point threshold that separates expansion from contraction and marked the first improvement in business conditions in three months.
Business activity expanded modestly during the month, with construction emerging as the strongest-performing sector.
New orders also returned to growth territory, supported by stronger overseas demand, while export orders recorded their fastest increase in three months.
Some firms attributed higher sales to new product launches, although others continued to report weak domestic demand and intense competition.
Usamah Bhatti, economist at S&P Global Market Intelligence, attributed the return to growth to modest increases in business activity and new orders, supported by stronger overseas demand despite ongoing weakness in local market conditions.
Despite the recovery in demand, employment continued to decline as firms reported sufficient capacity to handle workloads and chose not to replace departing staff.
Firms also reported a deterioration in supplier performance, with some linking delivery delays to shipping disruptions caused by the conflict in the Middle East.
Cost pressures remained elevated during the month. Purchasing costs rose at the fastest pace since December 2021, driven largely by higher raw material prices, particularly fuel-related products.
Many firms passed higher costs on to customers through price increases, although some offered discounts to support sales, resulting in a slower pace of output price inflation than in April.
Looking ahead, firms remained pessimistic about business prospects over the next 12 months, although negative sentiment eased to a three-month low.
The survey's elevated cost pressures come as Hong Kong officials expect inflation to accelerate in the coming months.
Hong Kong's annual inflation rate stood at 1.7% in April, unchanged from the previous two months and the highest level since May last year.
Financial Secretary Paul Chan Mo-po said the Middle East conflict has so far had only a limited impact on local inflation, citing Hong Kong's service-based economy and stable energy supplies from mainland China.
"Rising international oil prices will continue to feed through to consumer prices and fuel-related products," Chan told lawmakers on Monday.
"However, as Hong Kong is a service-oriented economy with relatively low energy dependency, and with stable energy supplies from the mainland, the external impact can be mitigated," he added.
The government revised its 2026 forecasts for underlying and headline inflation last month to 2.5% and 2.6%, respectively, from 1.7% and 1.8%.
