Monday 05, February 2018 by Jessica Combes

Saudi business confidence reaches eight-month high

 

January data indicated a subdued start to the year for non-oil private sector companies, with output growth continuing to slow from November’s 10-month peak, according to the Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI). 

Survey respondents commented on softer rises in new business intakes following the VAT introduction in January. However, reports from non-oil businesses suggested that the impact on sales was likely to prove transitory, with part of the slowdown simply reflecting a natural payback following strong order flows prior to the policy implementation. With private sector firms continuing to experience resilient demand fundamentals, staff hiring picked up to its strongest since August 2016 and business optimism reached an eight-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 softness in the January PMI survey was fairly broad-based, with faster employment growth being the main highlight. Wage increases, fuel subsidy cuts and the introduction of VAT is evident in the higher input costs and staff costs components of the survey in January.  However, firms were the most optimistic about their prospects in the coming 12 months than they have been since May 2017,” said Khatija Haque, Head of MENA Research at Emirates NBD.

Key Findings

  • Weakest rise in business activity since the survey began in August 2009
  • Softer new order growth linked to VAT introduction in January
  • Job creation and business optimism improve amid hopes that demand will rebound 

At 53.0 in January, down from 57.3 in December, the headline seasonally adjusted Emirates NBD Saudi Arabia PMI–a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy–remained well above the 50.0 threshold that separates expansion from contraction. However, the latest reading signalled the slowest improvement in private sector business conditions since August 2009. 

Weaker rates of business activity and new order growth were the main factors that weighed on the headline PMI in January. Survey respondents cited intense competition for new work and temporarily softer demand following the introduction of VAT at the start of 2018.

Saudi Arabian private sector companies continued to boost their operating capacity in January, as highlighted by a sustained rise in employment levels during the latest survey period. The rate of job creation was the fastest for almost a year-and-a-half, with a number of firms noting that business conditions were expected to improve over the course of this year. Reflecting this, latest data indicated that business optimism rebounded to its highest since May 2017.  

January data indicated a robust and accelerated rise in average cost burdens across the non-oil private sector economy. The latest increase in overall input prices was the fastest since July 2014. Anecdotal evidence overwhelmingly linked cost pressures to fuel subsidy cuts and the implementation of VAT in January.

Purchasing prices rose at the fastest pace for three-and-a-half years, while staff wages increased to the greatest degree since September 2016. However, there were signs that private sector companies continued to absorb higher operating expenses, as average prices charged increased only marginally in January. Reports from survey respondents suggested that competitive market conditions and subdued client demand were the key factors holding back prices charged inflation.

 

  

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