'High interest rates weigh on SMEs confidence'
The Productivity Council on Tuesday warned that a high interest rate environment is putting pressure on small and medium-sized enterprises (SMEs), with business confidence among SMEs dropping to the lowest point in two years According to a quarterly survey conducted by the council in July, 56 percent of the 814 local businesses interviewed said high interest rates had affected consumer spending, with the most affected industries being retail, accommodation and food services and real estate.  Also, about one-third of the SMEs interviewed said they had a cash flow or supply chain problem because of the high interest rates.  The council said business sentiment among SMEs remained cautious, with the latest Standard Chartered Hong Kong SME Leading Business Index recording a decline in confidence to 42.5 points, dropping from 47.3 in the previous quarter.  The council’s chief innovation officer Lawrence Cheung said 10 of the 11 industries involved in the survey had shown a drop in confidence, with real estate having the lowest score. He said that indicated both external and domestic-oriented sectors were under-performing.   Meanwhile, Standard Chartered senior economist Kelvin Lau said the survey indicated a lack of confidence among SMEs over the global economic outlook due to external uncertainties lingering. “Number one is the possibility of [Donald] Trump coming into office after the US elections in November. And the other being China's recent macro data weakness following its slightly weaker than expected Q2 GDP [growth], which came in at 4.7 percent rather than anything closer to 5 percent,” he said. “So overall, it's kind of like a double whammy that the local businesses need to worry about the US and they need to worry about China.” But he added there are certain bright spots, citing expectations the US Federal Reserve could start cutting interest rates from September. “Our own view is that we could see a collective 75 basis points of cuts between now and the year-end and possibly even more cuts in the first half of next year, to as much as 125 basis points in total,” he said.  “So that would hopefully be a lot of relief to the Hong Kong SMEs, in particular the real estate sector, for example, and to some extent the accommodation and food services sector as well.”