GBA – Steady as She Goes, Survey Says
·Q4 GBAI current performance and expectations indices eased, hinting at moderating recovery momentum
·But we see bright spots in strong ‘production/sales’ and ‘profits’ performance, rebounding tech industry
·Survey shows need for more policy easing to improve credit conditions and reduce labour-market slack
Cautiously upbeat towards 2024
Our GBA Business Confidence Index (GBAI), based on quarterly surveys of over 1,000 companies operating in the Guangdong Hong Kong Macau Greater Bay Area (GBA) and conducted in collaboration with the Hong Kong Trade Development Council (HKTDC), shows more cautious business sentiment compared with Q3, but is still consistent with a modest recovery story as we enter 2024. The current performance index for business activity eased to 51.4 in Q4 2023 after a brief rebound to 52.9 in Q3, while the corresponding expectations index also slipped to 54.1 from 56.3 prior. We continue to take comfort from the fact that both indicators remain above the neutral 50 mark, plus the narrow nature of the latest index setback (predominantly due to raw material inventory drawdown and weaker financing needs; components that are more reflective of immediate business performance – namely ‘production/sales’ and ‘profits’ – remained resilient). All that said, for a second straight quarter the gap between the current performance and expectations scores remained narrow; this indicates that little ‘policy premium’ is being priced in for now, despite the government stepping up efforts to support the economy. We think more policy easing is required in 2024 to avoid lingering cautiousness becoming entrenched.
In the meantime, credit conditions in the GBA appear to be improving, albeit slowly. By industry, ‘innovation and technology’ looks likely to start 2024 on a stronger footing as the growth driver rotates away from ‘retail and wholesale’. Despite this growing sign that the global tech cycle is turning a corner, Shenzhen underperformed in Q4 due to larger drags from its manufacturers and retailers. For thematic questions, we had confirmation of ongoing labour market slack, but GBA companies still plan to hire more in 2024. Our respondents also shared their views on youth employment and other labour related challenges.
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