Business activity in Arab world’s largest economies picks up on vaccination boost

Operating conditions in Saudi Arabia's non-oil private sector have improved in each of the past 10 months

The Riyadh skyline. Saudi Arabia's rate of job creation hit a 19-month high at the end of the second quarter on hopes of future output growth. Reuters

Business activity in the non-oil private sectors of the Arab world’s two biggest economies continued to expand in June as a sharp increase in new orders and demand growth boosted confidence, amid a rapid Covid-19 vaccination campaign.

Saudi Arabia's IHS Markit Purchasing Managers' Index remained unchanged at 56.4 for a second consecutive month, indicating a robust expansion in the kingdom's non-oil private sector economy. A reading above 50 indicates economic expansion while anything below points to a contraction.

Business conditions in Saudi Arabia have now improved in each of the past 10 months as its non-oil economy recovers from the coronavirus-induced slowdown.

"Demand growth in the Saudi Arabian non-oil sector ramped up again in June, with the latest data signalling the strongest rise in sales since January,” said David Owen, an economist at IHS Markit.

“The roll-out of Covid-19 vaccines and easing of restrictions also helped to lift confidence for future activity to a five-month high, as firms hope that the economic recovery will accelerate over the second half of the year.”

Employment in Saudi Arabia also continued to rise, with the rate of job creation hitting a 19-month high at the end of the second quarter on hopes of future output growth.

Further increases in sales should encourage companies to expand their workforce, “particularly as the outlook for future business conditions looks promising”, said Mr Owen.

A rise in the new orders' index took the expansion of the non-oil private sector in June to a five-month high, according to the survey. Panellists linked new business inflows to an improvement in demand conditions as Covid-19 restrictions were eased in the kingdom.

While foreign orders also put in a solid showing, overall demand growth was largely led by domestic sales. To meet rising demand, the input purchases of companies rose sharply at the end of the second quarter. The rate of growth hit a 21-month high.

Companies surveyed stressed the need to stock up to protect themselves against future price increases as new orders continue to rise.

"It was also encouraging to see a slight easing in overall input price inflation for the first time in 2021, despite reports of demand pressure on several inputs,” said Mr Owen.

The UAE's IHS Markit PMI reading stood at 52.2 in June, pointing to a moderate improvement in business conditions. The index was down marginally from 52.3 in May.

The country's outlook for future activity improved for a seventh month in a row and supported the first rise in employment levels since January, according to the survey.

The rate of output growth was unchanged at the end of the second quarter despite higher new order inflows, with rising activity levels offset by a lack of raw material supply.

“Firms often mentioned that material shortages had hampered output growth, while new sales were curtailed by [some] travel restrictions,” said Mr Owen.

Demand conditions were mixed, with overall new orders increasing in June. Some panellists said there was an improvement in client demand as the economic blow of the pandemic softened.

Sustained sales growth and an improved outlook for future activity encouraged companies to expand their workforce strength at the end of the second quarter. The increase in staffing was the quickest in about two and a half years.

“This helped firms to lower backlogs after a two-month run of accumulation,” the survey said.

Both Saudi Arabia and the UAE have eased pandemic-related restrictions as their mass inoculation programmes continue. However, some travel restrictions have been imposed in the recent weeks due to a surge in more virulent Covid-19 strains in some countries.

On Sunday, the UAE overtook the Seychelles to become the world’s most vaccinated country, with about three quarters of the public having received at least one dose, according to data compiled by Bloomberg.

The UAE has administered more than 15.5 million doses of vaccines, enough to vaccinate about 72.3 per cent of the country's population.

In Saudi Arabia, 18.4 million shots have been administered, enough for more than 27 per cent of the kingdom's population, according to Bloomberg's vaccine tracker.