Monday 05, March 2018 by Jessica Combes

Business growth at new low in Saudi non-oil private sector


February data signalled a further muted improvement in business conditions in Saudi Arabia’s non-oil private sector, partly driven by further subdued output growth, according to the Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI).

Moreover, new orders grew at the slowest pace on record, whilst foreign demand contracted. Firms reduced selling prices at an unprecedented rate in an attempt to stimulate client demand. Despite muted overall growth, sentiment towards future growth prospects reached a 46-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.

“While the pace of expansion in Saudi Arabia’s non-oil sector was slow by historical standards in February, firms were much more upbeat about prospects for the coming year, citing new project wins and stronger growth prospects.  However, demand remained softer than in Q4 2017, prompting firms to cut selling prices last month by the most since the survey began in August 2009,” said Khatija Haque, Head of MENA Research at Emirates NBD.

At 53.2 in February, little-changed from 53.0 in January, 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 – was at its joint-second lowest reading since the survey’s inception in August 2009. That said, the figure remained above the critical 50.0 no-change mark and thereby signalled an overall improvement in business conditions in the non-oil private sector.

After falling to a record low in the preceding survey, output growth ticked up during February, although the rate of expansion was the second-slowest registered in the survey’s history.

Inflows of new business expanded at the slowest pace in the survey’s history in February. According to anecdotal evidence, a reduction in demand from both domestic and foreign markets led to softening new business growth. Reflecting the deterioration in foreign demand, new export orders slipped into decline. The contraction ended a six-month sequence of growth.

Selling prices across Saudi Arabia’s non-oil private sector dropped at a record rate during February. According to anecdotal evidence, companies reduced output charges to stimulate client demand. The rate of reduction was moderate overall and the first registered since September last year.

Input price inflation softened to a three-month low during February’s survey period, falling below the long-run average. That said, average cost burdens faced by Saudi Arabian non-oil private sector firms continued to rise at a marked pace overall. Survey data indicated that both purchase prices and staff wages contributed to inflation.

Job creation in Saudi Arabia’s non-oil private sector continued during February, thereby extending the current sequence of growth to 47 months. The latest expansion was modest overall, albeit above the average registered over the past two years.

Despite easing demand for Saudi Arabian-produced goods and services, firms remained confident towards future growth prospects in February. The overall level of positivity reached its highest since April 2014 and according to anecdotal evidence, an expected economic upturn and new project wins underpinned positive sentiment.


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