Tuesday 03, July 2018 by Jessica Combes

Saudi’s non-oil private sector growth accelerates to six-month high


The health of the non-oil private sector improved at the fastest pace in 2018 so far during June

An upturn in output and new order growth were the key components behind the latest expansion. Furthermore, many panel respondents noted sharper capacity pressures, which led to the fastest build-up in backlogs of work in 11 months. In terms of inflation, both input and output price pressures remained subdued in the context of historical data.

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 rise in the headline PMI to the highest level this year reflects a strong recovery in new orders, including export orders, and output. Firms had been anticipating this for several months, as reflected in the very strong ‘future output’ readings since February.  It isn’t surprising then that the future output index declined sharply in June, with most firms now expecting their output to be relatively stable over the next 12 months,” said Khatija Haque, Head of MENA Research at Emirates NBD.

At 55.0 in June, up from 53.2 in May, 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 – recorded its highest reading in 2018 so far. The figure was well above the neutral 50.0 mark, thereby indicating a marked improvement in business conditions. That said, the rate of growth remained below the average registered since the survey’s inception in August 2009. 

Output growth accelerated at the end of the second quarter, with the latest expansion being the strongest since December last year. Firms frequently linked higher output to strong inflows of new business and improving market conditions. 

New orders in Saudi Arabia improved at the fastest rate in six months during June. New business was sourced from both domestic and foreign sources, with the latter returning to growth for the first time since January during the most recent survey. 

Reflecting higher inflows of new orders from both domestic and foreign sources, capacity pressures built up across the non-oil private sector, as signalled by a solid rise in work outstanding. In fact, backlogs of work increased at the fastest pace in 11 months in June. 

Despite a solid increase in new orders and work outstanding, firms hired additional staff at a rate below the historical average. The rate of job creation was slight overall, albeit fractionally above that in May. 

Input price pressures faced by firms in Saudi Arabia’s non-oil private sector increased at the fastest pace in four months during June. According to anecdotal evidence, rising raw material prices led to higher cost burdens. That said, in the context of historical data the latest rise in input prices was subdued. 

Output charge inflation eased since May, with some firms linking a fall in selling prices to promotional activity. The rate of inflation remained below the long-run average. 

Despite the upturn in business conditions, optimism towards future growth prospects eased to a nine-month low and was much weaker than seen in the previous month.

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