Thursday 04, January 2018 by Jessica Combes

Sharp growth in Saudi non-oil private sector signalled at end of 2017


December data signalled a strong end to the year for the Saudi Arabian non-oil private sector, with a sharp improvement in business conditions, according to the Emirates NBD Saudi Arabia PMI.

Despite the rate of expansion softening fractionally in the latest survey, the pace of growth remained above the average registered throughout the year. Strong increases in both output and new orders contributed to the upturn. On the price front, input cost inflation accelerated to a 16-month high.

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 private sector.

“The December PMI survey continued to show a strong rate of expansion in December, and the data suggests that non-oil growth accelerated in the final quarter of 2017, as well as for the year as a whole compared to 2016.  Nevertheless, we expect headline GDP growth to be close to zero in 2017 as substantial oil production cuts will offset the expansion in the non-oil sectors of the economy. We are more optimistic about growth prospects in 2018 however,” said Khatija Haque, Head of MENA Research at Emirates NBD.

Key Findings include headline PMI little-changed at 57.3; strong growth in both output and new orders; and input price inflation sharpens to 16-month high.

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–fell fractionally to 57.3 during December, from 57.5. That said, the latest figure signalled that the rate of expansion remained steep overall and above the average registered throughout 2017.

Despite easing since the preceding survey period, non-oil private sector companies in Saudi Arabia continued to report steep rates of expansion in output. According to anecdotal evidence, strong underlying demand in the domestic market alongside rising new orders from neighbouring economies both contributed to higher output requirements.

In line with the trend seen since the survey began in 2009, inflows of new business received by Saudi Arabian non-oil private sector firms increased once again during December. The rate of expansion was sharp overall, albeit below the series’ historical average.

New export orders expanded during December, thereby extending the current sequence of growth to five months. Furthermore, the rate of increase accelerated to its fastest since August.

Continuing the sequence registered since April 2014, non-oil private sector companies in Saudi Arabia continued to hire additional staff in December. That said, the rate of job creation remained slight overall and slower than the series’ long-run average.

In terms of inflation, average cost burdens rose at a marked pace during December’s survey period. Increased demand for raw materials led suppliers to increase prices, according to panel member reports. Despite the marked increase in input costs, selling prices only rose at a fractional pace overall amid strong competitive pressures in the non-oil private sector.

December’s survey signalled a sharp expansion in purchasing activity. Panel members increased input buying in anticipation of rising output requirements.

On a less positive note, business confidence towards future growth prospects eased during December. That said, firms remained optimistic overall. An expected upturn in business conditions and rising marketing activity were both forecast to underpin output growth over the next year.

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