Economic Forum - Global Economic Analysis & Reports

While the United States is on track to end the year, the global economic outlook is plagued by the uncertainties in the eurozone. Hong Kong businesses are more conservative and fears are increasing that business growth will become more difficult in 2012. The most recent figures from Grant Thornton International Business Report show that the polarisation of business confidence between Europe and the rest of the world is becoming increasingly apparent.

The latest research shows that global business optimism in Q4 of 2011 stands at net 0%, indicating a balance* between those business leaders feeling optimistic about their economies in 2012 and those feeling pessimistic. It represents a further deterioration from 3% in Q3 2011 and 31% in Q2 of 2011.  

In Hong Kong, businesses also experienced a large plunge in business optimism to 10% in Q4 of 2011, down from 42% in Q3. Overall in 2011, Hong Kong’s business optimism index dropped 23 percentage points from 2010. The business optimism of Asia Pacific (excluding Japan) and mainland China dropped 24 and 27 percentage points respectively.

Hong Kong businesses take on challenging moments

The times ahead present challenges to Hong Kong businesses to sustain trade momentum. Profitability and revenue expectations in Hong Kong both fell by 24% in Q4 of 2011 over the last quarter, while optimism for exports over the next 12 months plunged by 30% compared to the last quarter. Profitability remains strong in mainland China with 61% of businesses expecting to increase profitability in 2012.

Hong Kong is bracing itself for some turbulent times ahead. The survey revealed that inflation will continue to be a concern in 2012 as selling prices are expected to grow while business expectations for increasing revenues and profits remain low. Hong Kong businesses have to work harder than ever to maintain margins and competitiveness in the face of strong economic headwinds.

Shortage of orders and cost of finance weighs down on Hong Kong businesses

A myriad of constraints continue to hinder Hong Kong businesses. The proportion of businesses citing rising costs in finance rose by 30 percentage points over the past three months, up from 8% in Q3 of 2011. Moreover, 64% of businesses considered shortage of orders a major constraint, up 52% from last quarter, reflecting difficult business circumstances. Red tape/regulations were also cited as a major hindrance, marking a notable 10% increase year-on-year (28% in 2011 vs 18% in 2010). Across 2011, reduced demand (33%), shortage of working capital (26%), and shortage of long term finance (20%) have been cited as the major constraints facing Hong Kong businesses.

With subdued import demand in most traditional markets such as the United States and Europe, the decline in export sentiment amongst Hong Kong enterprises is inevitable. Hong Kong’s economy has been hit particularly hard by a shortage of orders as a heavily outward-oriented economy.  

Employment needs remain strong in Hong Kong

Away from the economic gloom, the results regarding pay rises and employment provide an encouraging bright spot in the research. Despite the percentage balance dropped significantly from 62% in Q3 to 30% in Q4, Hong Kong remains in the top five in employment among developed economies this quarter. Across 2011, 47% of Hong Kong businesses hired new staff, ranking top 5 globally and top among developed economies. However, the availability of skilled workers, cited by 41% of Hong Kong businesses, remains a concern among the businesses.

In Q4 of 2011, 80% of Hong Kong businesses reported that they will offer pay rises at least in line with inflation in 2012, up from 72% in Q3. However, the proportion expecting to offer above inflation pay rises declined from 18% in Q3 to just 6% in Q4.