Hong Kong’s export sentiment turned negative in the third quarter of 2011 as businesses there reacted to the gloomy outlook in the United States and European markets, according to the latest export sentiment survey from the Hong Kong Trade Development Council (HKTDC). The majority of surveyed exporters said they were worried about the higher costs of production on the mainland.


Speaking Thursday at a press conference, HKTDC Chief Economist Edward Leung revealed that the HKTDC Export Index had edged down to 49.5 in the third quarter, from 53.8 in the second quarter. The HKTDC Export Index, published in each issue of the HKTDC Trade Quarterly, monitors the performance of Hong Kong traders and gauges their short-term prospects.


“While the reading fell to marginally below 50, overall sentiment has turned slightly pessimistic over the short term,” said Mr Leung. “The sentiment in different industries, however, varies. Although clothing and toy exporters are negative, the readings in jewellery, timepieces and electronics remained above 50, signalling short-term stability.”


Beyond Hong Kong, all markets, except for the Chinese mainland, fell under 50. The mainland’s reading of 51.7, however, was down from 53.1 in the second quarter. Export confidence improved slightly for Japan, but was still in contractive territory. For the US and the EU, readings stood at 48.2 and 47.6, respectively. Mr Leung attributed the fall in sentiment to the slower-than-expected recovery in the US and the deepening of the sovereign debt crisis in Europe.


“The findings indicate that the recovery of mature markets is fragile and full of uncertainties,” he said. “With the European debt crisis spreading to Spain and Italy, and looming worries about a double dip in the US economy, Hong Kong exports are expected to grow only at a moderate rate in the coming months.”


Mr Leung added that Hong Kong exporters were facing a double whammy. In addition to export market uncertainties, the pressure on production costs remains high. 


“With volatile commodity prices now a global phenomenon, particular cost issues are more acute in China,” Mr Leung said. “Manufacturers operating in the Pearl River Delta region continue to face the challenge of rising production costs due to higher wages and increased worker benefits.”


A survey conducted by the HKTDC showed that 88 per cent out of 500 responding Hong Kong companies said they expected higher labour costs on the mainland during the third quarter of 2011. Among exporters surveyed, 87 per cent said mainland’s inflation worried them; among them, 97 per cent said they were concerned about higher costs of production on the mainland.


“Export prices are rising in general, but they are not keeping pace with costs,” Mr Leung said. “This will eventually translate into thinner margins or sales declines for exporters and manufacturers.”