Hong Kong SMEs’ Business Sentiment Improves in Q3 2021; Pre-Pandemic Levels Still Out of Reach

Business sentiment among Hong Kong’s small and medium-scale enterprises (SMEs) improved in the third quarter of 2021 amid the gradual easing of COVID-19 restrictions, but the sector is not yet out of the woods.

The Standard Chartered Hong Kong SME Leading Business Index, a closely watched barometer that measures business sentiment among local SMEs, climbed 4.4 points to 46.6 in the third quarter, the highest reading since the same period in 2018.

Despite the improvement, the index remained below the 50-point neutral mark, signaling persisting uncertainties due to the pandemic and political tensions in the semi-autonomous region.

Across-the-board increase

All five components sub-indices improved in the third quarter, led by the gauge for global economic sentiment. The global economy sub-index came in at 52.8, up from 43.6 in the second quarter and the low of 7.9 in the third quarter of 2020. The recruitment sub-index rose to 50.9 to surpass the 50-point neutral mark for the first time in two years.

“The survey shows that SMEs are flexing their muscles to pick up their business as fast as possible by increasing investment and expanding staff size,” said Edmond Lai, chief digital officer of the Hong Kong Productive Council, in a July 27 release.

By industry, information and communications, real estate, and social and personal services were the top performers as their respective indices stood above the 50 neutral mark.

Meanwhile, 31% of surveyed SMEs claimed to be close to restoring pre-pandemic levels, while nearly 7% said their business performance was better prior to the pandemic. The information and communications, real estate, and financing and insurance industries had the most satisfactory performance amid the pandemic. In contrast, the accommodation and food service industry was the hardest hit as COVID-19-related restrictions weighed on demand.

Recovery momentum

Looking ahead, SMEs plan to spend on information technology, as well as product and marketing promotions over the next quarter.

Kelvin Lau, senior economist at Standard Chartered Bank (Hong Kong) Limited, said the latest survey signals business sentiment has further improved and such momentum is likely to extend into the second half of 2021 and bode well for a wider economic recovery.

“All this, however, is still not enough to push the overall SME Index back above the 50 neutral mark for now, meaning that SMEs are generally still operating below normal levels,” Lau warned.

Hong Kong faced its battle against the pandemic while still reeling from the impact of political tensions and street protests on the Asian financial hub’s economy, leading to a recession that lasted for several consecutive quarters.

Official data showed on July 30 that the Hong Kong economy expanded 7.5% in the second quarter of 2021 from the year-ago period, reflecting government efforts to keep COVID-19 cases at bay through the continued roll-out of vaccines.