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Saudi non-oil sees 36-month high growth in new orders

Mar 5, 2019 8:26 AM

Saudi Arabia s non-oil private sector witnessed an upturn in business conditions in February led by a steep and accelerated increase in new business the sharpest seen since August 2015 said Emirates NBD...

Saudi Arabia’s non-oil private sector witnessed an upturn in business conditions in February led by a steep and accelerated increase in new business – the sharpest seen since August 2015, said Emirates NBD in its latest PMI survey.

The Emirates NBD Purchasing Managers’ Index (PMI) for Saudi Arabia, sponsored by Emirates NBD and produced by IHS Markit, a world leader in critical information and analytics, contains original data collected from a monthly survey of business conditions in the Saudi Arabian private sector.

Commenting on the Saudi Arabia PMI survey, Khatija Haque, head of Mena Research at Emirates NBD, said: “Saudi Arabia’s headline Purchasing Managers’ Index (PMI) rose modestly to 56.6 in February from 56.2 in January, the highest reading since December 2017. However, the February PMI reading is still below the series average of 57.6, indicating that non-oil growth in the kingdom is still weaker than the long-run average.”

“The main driver for the improvement in February was a stronger rise in new orders, despite the second consecutive decline in new export orders. This suggests that it is domestic demand driving order growth.  The output index rose slightly last month as well.

“Despite relatively strong growth in output and new orders, employment in the private sector was broadly unchanged, with fewer than 1 per cent of firms surveyed reporting increased hiring.  The employment index was the lowest in nearly five years in February, at 50.2.  Some firms indicated that cost control efforts were behind the reluctance to hire, despite rising new orders.  Indeed, there was very little evidence of wage growth in the private sector last month, with the staff costs component declining to 50.2.
   
“Overall input costs eased for the second month in a row, providing some relief for firms’ margins as selling prices were broadly stable.  Firms continued to report strong competitive pressures, eroding their pricing power.  

“Businesses increased their stock of pre-production inventories at the fastest rate since September, likely reflecting both the rise in new orders as well as optimism for future order growth – more than half of firms surveyed expect their output to be higher in a year’s time,” she added.
 
The main findings of the February survey were as follows:    

•    Stronger domestic demand underpins improvement in business conditions in February
•    Output growth ticks up to three-month high
•    Employment rises only fractionally amid tighter cost management

Export sales were down on the month, indicating that the main impetus continued to come from the domestic market.

Increased demand in turn resulted in higher overall output in February, with the rate of growth accelerating for the second month in a row to the highest since last November.

February also saw a stronger increase in purchasing activity as firms looked to bring their buying levels into line with higher output requirements and build up inventories. Businesses that raised their stocks of purchases also commented on an expected uplift in activity in the coming months. Confidence towards the outlook remained among the highest seen over the past five years, albeit with the degree of optimism easing slightly from January’s recent peak.

Less positively, latest data showed that firms operating in Saudi Arabia’s non-oil economy remained reluctant to take on additional staff. Employment rose only fractionally and at the slowest rate in almost five years in February. According to anecdotal evidence, this was partly due to efforts to control costs amid a backdrop of strong competitive pressures.

Firms’ overall operating expenses were little-changed in February, as a slight rise in average staff pay was offset by a similarly marginal fall in purchasing costs. Average prices charged for goods and services were also broadly stable. A decrease in selling prices has been recorded in each month since last November; however, in February fewer firms reported offering discounts amid stronger underlying demand.

Finally, February’s survey indicated shorter lead times on purchased items, which anecdotal evidence attributed to requests for faster deliveries and more timely payments to suppliers. – TradeArabia News Service

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