Non-Oil Sector Growth Remains Below the Pre-VAT Average in Saudi Arabia

Published September 6th, 2018 - 09:18 GMT
The pace of non-oil private sector growth in the Kingdom has accelerated in the last three months. (Shutterstock)
The pace of non-oil private sector growth in the Kingdom has accelerated in the last three months. (Shutterstock)

The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the Saudi Arabian private sector.

Commenting on the Saudi Arabia PMI survey, Khatija Haque, Head of MENA Research at Emirates NBD, said that the headline PMI rose to 55.1 in August from 54.9 in July, on stronger output and new orders growth. However, employment growth was modest, and the slowest in three months, while average selling prices declined for the second month in a row, as firms offered promotions to stimulate demand.

“The survey data suggests that the pace of non-oil private sector growth in the Kingdom has accelerated in the last three months, relative to the first five months of the year. Nevertheless, the rate of expansion so far in 2018, measured by the average PMI reading for January through August, is markedly weaker than for the same period last year, and in fact the slowest on record. The output and new work indices rose to their highest levels so far this year at 59.7 and 59.0 respectively, but as with the headline PMI, year to date both components remain well below previous years’ averages.  Export orders increased only marginally in August, and some firms noted that domestic demand was supported by promotional activity. This is also reflected in the output price index, which showed a decline in average selling prices for the second month in a row in August, despite higher input costs,” said Haque.

At 55.1 in August, up from 54.9 in July, the headline seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – edged upwards to a three-month high. The figure remained well above the 50.0 no-change threshold and indicated a sharp improvement in business conditions across the non-oil private sector.

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The latest data indicated an uptick in output growth across the non-oil private sector. Many firms linked higher activity to stronger inflows of new business. Despite August’s improvement in output being sharp overall, the rate of growth was below the historical average. 

Haque added that employment growth was also relatively modest in August, with just two per cent of firms surveyed reporting increased hiring. Staff costs (wages) were unchanged on average last month. “On the whole, firms surveyed were optimistic about their future output, with 17 per cent of firms expecting their output to be higher in a year’s time. However, this is a slightly lower percentage than in July.”   

Continuing the current phase of improvement registered since May, new orders received by non-oil private sector companies in Saudi Arabia increased again in August. Whilst domestic client demand remained robust, some respondents noted that they used promotional activity to stimulate demand during the latest survey period. New export orders increased, albeit at only a marginal pace overall. 

Reflecting stronger inflows of new business, firms reported a marked build-up in work outstanding in August. Some companies noted that output had been focused on ongoing projects whilst new orders were adding to the backlog of work. 

On the price front, selling prices fell once again in the non-oil private sector, linked to promotional activity. Meanwhile, input price pressures remained moderate and unchanged since the preceding survey. 

In response to higher output requirements, firms in the non-oil private sector upped their purchasing activity during August. The rate of growth was sharp overall and the strongest seen in 2018 so far. Reflecting increased input buying activity, stocks of purchases increased at a marked rate during the latest survey period.

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