Hong Kong SME confidence edges up despite cost and AI uncertainties
Standard Chartered's index shows Hong Kong SMEs' confidence improved slightly in Q4 2026, though caution remains. Raw material cost expectations rose while wage pressures eased. The bank forecasts 4.3% economic growth this year, slowing to 2.7% in 2027.
Standard Chartered Hong Kong's SME Leading Business Index edged down 0.7 points quarter-on-quarter to 44.8 in the fourth quarter of 2026, reflecting cautiously improved confidence among small and medium-sized enterprises about business prospects.
The "business condition" and "profit margin" sub-indices performed best, rising 1.8 points to 42.3 and 2.1 points to 39.9 respectively. "Investment sentiment" edged up to 50.8 points, while "recruitment sentiment" slipped slightly to 50.1 points, indicating a cautious view of the external economic outlook.
The proportion of SMEs expecting higher raw material costs rose from 42 per cent in the previous quarter to 53 per cent in the fourth quarter. Those anticipating pay rises dropped 14 per cent, reflecting easing cost and wage pressures. Meanwhile, 20 per cent of SMEs plan to raise prices for goods and services, up one percentage point from last quarter.
Tommy Wu, senior economist for Greater China and North Asia at Standard Chartered, estimated Hong Kong's economic growth at 4.3 per cent this year, slowing to 2.7 per cent next year. He said he is cautiously optimistic about next year, noting that SME confidence in business and profit prospects has improved for two consecutive quarters, supported by better short-term sales and profit outlooks. Wu added that the ongoing global artificial intelligence super-cycle is also boosting the city's external trade.
Wu noted that the market currently worries that AI investment is growing too fast and related companies are overvalued, which could cause short-term volatility. However, US tech giants continue to invest heavily in AI infrastructure and data centres, and such high-level investment is expected to persist for several years. AI investment has not yet been affected by rising interest rates and energy prices, and financing and export growth remain rapid, which should support Hong Kong's economy and exports next year, Wu added.
Separately, Wu said the US Federal Reserve may raise rates once more in December, with the market expecting two hikes next year. He said uncertainties remain around inflation and interest rates, as energy prices are at multi-year highs, with damage to energy infrastructure in the Middle East and Russia, and as economies may begin replenishing depleted oil reserves next year. Wu expects Hong Kong may follow the US in raising rates, with fixed investment and real estate facing downside risks. He believes business confidence in the retail, accommodation and food services sectors will improve, supported by the continued recovery of inbound tourism. As the trend of northbound consumption eases and spending habits gradually adjust, pressure on SME businesses has already eased.