Hong Kong business optimism drops in Q2 while employment and salaries stay high

Hong Kong – After rebounding strongly in the first quarter of 2011, optimism amongst privately held businesses in Hong Kong fell in the second quarter of this year, according to the latest International Business Report (IBR) released by Grant Thornton Jingdu Tianhua. The “Percentage Balance of Optimism/Pessimism” (* see note) decreased sharply from +67% in Q1 2011 to +46% in Q2.

Despite this decline, the research reveals that employment and salary expectations in Hong Kong remain positive.

Hong Kong’s optimism is affected by global economy

According to IBR, the optimism level of businesses in Hong Kong dropped 21% to +46% in Q2 although the figure is still higher than the global average of +31%. Japan, where the economy has been severely affected by the March earthquake and tsunami, has the lowest optimism level of -62% among all economies surveyed.

Hong Kong businesses have demonstrated declining optimism in revenue, exports, profitability, investment in new buildings, investment in plant and machinery, and R&D, when compared to figures of Q1 this year. Respondents’ confidence dropped most significantly in exports (+18%) and revenue (+68%), which decreased 18% and 13% respectively from last quarter.

Daniel Lin, managing partner of Grant Thornton Jingdu Tianhua, commented “The fact that Hong Kong economy is highly dependent on global trade makes Hong Kong businesses more susceptible to global economic sentiments. Companies are feeling the effects of the unrest in the Middle East and the subsequent volatility in oil and commodity prices, which recently led western nations to release large stocks of oil. In addition, the earthquake and nuclear disaster in Japan caused huge disruption to supply chains. The global atmosphere may be responsible for the steep drop of business’ confidence in exports and revenue.”

“Domestically, in the past few months, the property market has decelerated and financial market was fluctuating in Hong Kong , which to some indicates a slowdown in the wider economy. Businesses have been frustrated by the volatile local financial market and unpredictable property prices, which remain untamed despite government’s measures. At the same time, fears about rising inflation will weigh on business optimism as well. All these factors have brought uncertainties to the economy,” added Daniel Lin.

Employment and salary rise remain positive

Although business optimism dropped in the second quarter, there is no sign of this impacting on the livelihood of Hong Kong residents. On balance, +50% of businesses reported increasing levels of employment over the past 12 months, compared with +42% in Q1. This places Hong Kong fifth globally, behind just India (+76%), Turkey (+60%), Switzerland (+56%) and Sweden (+54%).

Hong Kong businesses are even more positive in terms of salaries: 80% of respondents expect to offer their employees a pay rise in next 12 months, a significant increase from the 55% observed in 2010.

Daniel Lin added: “Despite all the global issues, Hong Kong continues to benefit from the growing economy in the region, especially the increasingly close relationship with the mainland. Looking ahead, we expect the livelihood of Hong Kong people will keep improving although we need to be aware of the inflation arising from pay rise as well as increasing costs of materials.”

* Note: The "Percentage Balance of Optimism / Pessimism” is the percentage of respondents who are optimistic less the percentage of those who are pessimistic. The highest score possible is +100% and the lowest is -100%