Expectations running high
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) conducted in collaboration with the Hong Kong Trade Development Council (HKTDC), shows business confidence was off to a strong start in Q1‑2021. The GBAI’s ‘current performance’ index for business activity rose further above the 50 neutral mark to 53.0 in Q1‑2021 from 50.2 in Q4‑2020. The improvement came despite a seasonal slowdown in factory production and transitory COVID containment measures around Lunar New Year, plus worsening profit pressure due to rising costs. Even more encouraging was the jump in the forward‑looking ‘expectations’ index, to 62.7 from 54.1 prior. Worldwide vaccine rollout likely fuelled the broad‑based improvement, with all eight sub‑indices above 60. This, in our view, gives policy makers more cushion to taper stimulus, which could weigh on growth in H2‑2021.
A detailed breakdown shows continued outperformance in ‘manufacturing and trading’; more surprising was ‘retail and wholesale’ coming in second, beating IT and financial services; this hints at a broadening of China’s services sector recovery. Shenzhen and Guangzhou’s more developed services sectors likely contributed to their latest outperformance among cities, in our view, adding to their edge in manufacturing and technology. Our thematic questions showed that respondents are most upbeat towards vaccine rollouts in China and elsewhere, and are mostly concerned about higher costs and other production challenges in 2021. Over 20% of respondents already use Renminbi trade settlement, and another 16% plan to start doing so this year. We see room for policy relaxation to make cross‑border money movement easier.
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