The seasonally adjusted S&P Global Hong Kong Purchasing Managers’ Index (PMI) climbed to 52.3 in January, up from 51.9 in December, reflecting a sustained and robust improvement in Hong Kong's business environment. Business activity increased for the sixth consecutive month, with the rate of expansion remaining stable compared to the previous month and notably strong overall. Sector data indicated that the growth was primarily driven by the services sector, followed by the wholesale and retail trade, while the manufacturing and construction sectors moved in the opposite direction. Notably, the rate of increase in export orders was the highest in nearly three years. During the period, new orders also rose substantially, with the pace of expansion being the second fastest since May 2023, trailing only the rate seen last November. Surveyed firms frequently attributed the successful sales drive to adjustments in their market strategies and the launch of new products. Simultaneously, customer demand from both overseas and mainland markets showed improvement at the start of the year; in fact, the growth in export orders was the strongest in nearly three years. The improvement in orders prompted a further accumulation of backlogged work for the second consecutive month; as staffing levels declined, the rate of accumulation of unfinished work accelerated compared to the previous month. Many surveyed businesses reported that they had not filled vacancies left by departing employees, leading to a reduction in headcount; however, the overall rate of job shedding was actually quite modest. Enterprises began the new year with more active procurement. The latest data shows that purchasing activity increased due to the expansion of sales channels and companies' deliberate efforts to replenish inventories. On the other hand, the rate of expansion in input inventories reached its highest level in seven months. Firms reported that although demand for inputs heated up, supplier delivery performance actually improved for the second month running in January. The rate of increase in input costs slowed on a monthly basis in January, yet remained significant overall, with businesses citing rising raw material prices as a common reason for soaring procurement costs. Furthermore, staff costs rose modestly, with the rate of increase slowing to the smallest seen since last September. Although businesses attempted to pass increased costs on to customers by raising selling prices, the overall increase was moderate as many companies offered discounts to stimulate sales. Despite improved market demand, firms remained pessimistic about the year-ahead outlook in January, with negative sentiment intensifying to its most marked level in five months. Businesses indicated that factors such as US trade policy, intense market competition, and a sluggish global economy are exerting pressure on future production performance, although a number of firms also explicitly expressed confidence in the continued prosperity of the local economy. Usamah Bhatti, an economist at S&P Global Market Intelligence, stated that with purchasing activity becoming more vigorous and backlogs continuing to increase, it signals that business activity will maintain its growth in the first quarter to meet customer demand.