Saudi Arabia non-oil private sector rises to 14-month high on stronger output

Improved business conditions driven by rise in new orders and robust domestic demand, says Emirates NBD

The Kingdom Tower in Riyadh. Saudi Arabia's non-oil economy grew in August, with confidence among bosses at a three-month high, driven by expectations of stronger demand. Bloomberg

Business conditions in Saudi Arabia’s non-oil private sector improved to their highest level since December 2017, driven by a rise in output and new orders, according to Emirates NBD’s latest survey.

The Saudi Arabia Purchasing Managers’ Index (PMI) – a composite indicator produced by Dubai's largest lender with IHS Markit, which provides an overview of operating conditions in the non-oil private sector economy – rose to a 14-month high of 56.6 in February, from 56.2 in January. This brought the headline index closer to its long-run average of 57.6 since August 2009, although non-oil growth in the kingdom is still weaker than in previous years, Emirates NBD said.

Growth in February was driven by the sharpest increase in new business since August 2015, and by rise in order growth to a three-month high, according to the index. Export sales were down on the month, indicating that stronger demand came principally from the domestic market.

Overall operating expenses of companies were little changed in February, as a slight rise in average staff pay was offset by a marginal fall in purchasing costs. Average prices charged for goods and services were stable. A decrease in selling prices has been recorded in each month since November. However, in February, fewer companies reported offering discounts amid stronger underlying demand.

Meanwhile, overall input costs eased for the second month in a row, providing some relief for company margins as selling prices were broadly stable, Emirates NBD said. There was also an increase in purchasing activity, as businesses sought to reflect higher output requirements.

“Businesses increased their stock of pre-production inventories at the fastest rate since September, likely reflecting both the rise in new orders and optimism for future order growth. More than half of firms surveyed expect their output to be higher in a year’s time," said Khatija Haque, head of Mena research at Emirates NBD, on Tuesday.

However, companies continued to report strong competitive pressures, which eroded their pricing power, the bank said. Employment was broadly flat month-on-month, with fewer than 1 per cent of companies surveyed reporting more hiring and the employment index hovering at its lowest in nearly five years in February amid tighter cost management.

The improvement in the PMI follows a brighter outlook for the Saudi economy as a whole in January. Credit to the private sector rose for tenth straight month, rising 2.4 per cent year on-year in January, while bank claims to the public sector also grew 19.5 per cent year-on-year. Consumer spending accelerated on an annual basis in January as reflected by the improvement in points of sale transactions, which were up by 31.8 per cent year-on-year, and ATM withdrawals, which grew 1.6 per cent year-on-year.

Meanwhile, the Emirates NBD UAE PMI slipped to a 28-month low due to a weaker rise in business in February compared with January.

The PMI fell to 53.4 in February from 56.3 in January, Emirates NBD said

"The rate of input cost inflation remained muted, while price discounting continued as firms competed to secure new work," said the survey.