19 June 2003 | Robin Parker
Economic markets were still suffering last month from the Sars virus and the impact of the war in Iraq, the latest purchasing indicators show.
The NTC Research Hong Kong purchasing managers' index (PMI) rose slightly in May from April's five-year low to 39.9, but is still well below the 50 mark indicating no change, suggesting steep contraction.
Output and order books continued to contract at the steepest rates yet, and prices charged for goods and services fell at the sharpest rate in 18 months.
The problems were attributed to purchasing and investment decisions being postponed until the economic uncertainty caused by Sars had ended, and to persistent pessimism regarding a post-Iraq war recovery.
US purchasers also blamed Sars for the continued contraction of the Institute for Supply Management's manufacturing PMI, although this grew by five points in May to 49.4.
In Europe, the euro-zone PMI for manufacturing fell to a 16-month low of 46.8.
Germany reported the strongest fall in output for the second month running, making purchasing activity contract at its fastest rate since January 2002.
The UK manufacturing sector deteriorated for the sixth month in a row, fuelled partly by shrinking export order books, according to the CIPS-backed index. Activity in the construction sector was also at its weakest since November 2001.
There was marginal growth in confidence in the non-manufacturing sector. The UK services industry reported a growth in new business for the first time in four months as the PMI grew for a second month in a row.
Sales grew from new contracts for work deferred during the Iraq conflict, fuelled by the most optimistic outlook among purchasers since September.
But Alistair Eperon, chairman of the Confederation of British Industry's distributive trades panel, which reported growing retail sales, said purchasers will face a "wait and see" approach to executive decisions on spending, particularly on buildings, vehicles, equipment and fittings.
"Nervousness about how sustainable the recovery will be has severely hit retailers' ability to commit to investment," he said.