Hong Kong’s private sector returned to growth in January after deteriorating for five consecutive months, according to HSBC’s latest survey on purchasing managers.

The HSBC Hong Kong Purchasing Managers Index climbed to 51.9 in January from 49.7 in December, the bank report released on Friday shows. A reading above 50.0 indicates expansion, while a figure below that level signals contraction. January PMI registered above the no-change benchmark for first time since last July.

“Overall demand strengthened again in January to tip the headline PMI back above 50,” Donna Kwok, Greater China economist with HSBC commented on the latest release. “The sustained strength of Hong Kong’s job market is clearly helping to underpin local consumption and offset the impact of the still tepid mainland demand.”

The index is derived from a variety of business aspects, measuring changes in output, new orders, employment, suppliers’ delivery times and stocks of goods purchased. Outcome is based on a survey of about 300 companies, the bank claims.

Output and new order growth were both at eight-month highs, with readings of 51.7 and 53.7 last month compared with 49.7 and 50.4 in December, supporting the PMI which rebounded from the gloom in the previous few months.

Hong Kong’s private sector employment increased modestly last month as companies hired more staff on greater production requirements, ending a five-month stretch of job losses, according to the report.

New business inflows from the mainland, however, contracted again for the third straight month, despite an improvement in the reading to 49.1 in January, up from 47.8 in the previous month. Kwok said the resilience of the Hong Kong domestic demand is acting as a critical counterbalance against the influence of the mainland’s continued slowdown and ongoing turmoil in Europe as well as in the global financial markets.

Companies responding to the survey also indicated further rises in input prices on purchases and labor costs in January which were above the long-run series average, also the fastest in three months, the report indicated.

“Slowing global trade flows will weigh upon growth this year, but this promising start to 2012 underscores our expectations for gross domestic product to stay in expansion mode this year,” Kwok estimates.

Hong Kong’s economy would retreat in the first quarter this year if exports are hit by the lackluster worldwide economy, Financial Secretary John Tsang said during his budget speech in Hong Kong on Wednesday, forecasting that the 2012 economic growth would slip to between 1 to 3 percent, down from the 5 percent expansion last year.

“I’m not optimistic about Hong Kong’s export performance in the first half of this year, and if exports of goods were to plunge in the first quarter, the overall economy might take a downturn in that quarter,” Tsang said, adding that he expects the external sector to witness improvement in the second half this year.

Hong Kong is quite likely to encounter a “shallow” recession in the first half, according to UBS AG, which expects the economy to expand just 1.6 percent this year, in comparison with growth predictions of Standard Chartered Plc and Hang Seng Bank Ltd of 2.9 percent and 4.0 percent respectively.

Unemployment may climb this year, the financial secretary said during the budget speech. DBS Bank Hong Kong Ltd forecasted that the city’s jobless rate will reach 4.4 percent by the end of 2012 from 3.3 percent in the fourth quarter last year.

litao@chinadailyhk.com