New orders boost Saudi private sector growth in August

The health of Saudi Arabia’s non-oil private sector continued to improve during August, with growth supported by sharp expansions in new orders and output, according to a new business survey.

Emirates NBD’s Saudi Arabia Purchasing Managers’ Index survey said international demand for Saudi products and services picked up, as highlighted by a renewed increase in new export orders.

It added that growth of staffing levels was sustained during August, as companies responded to greater capacity pressures by taking on extra staff.

Companies continued to face upward cost pressures, but their ability to fully pass on higher cost burdens to consumers was restricted by intensive competitive conditions. The rate of growth in inventories climbed to a record high, reflecting greater buying levels.

The headline seasonally adjusted Emirates NBD Saudi Arabia PMI edged up to 55.8 in August from 55.7 in July. This was consistent with the strongest improvement in operating conditions since April. However, the headline PMI remained below its long-run average (58.1).

Khatija Haque, head of MENA Research at Emirates NBD, said: “Saudi Arabia’s non-oil sectors expanded at a solid rate in August, with the headline PMI broadly unchanged from July.  The recovery in export orders helped boost overall new order growth to the fastest rate in four months in August, while output also showed a sharp rise last month.”

The upward movement in the headline index was supported by a sharper increase in new orders. The rate of growth in new work quickened to the fastest in four months. More projects and stronger underlying demand were cited by panellists as the key factors behind greater inflows of new business.

Despite softening from the preceding month, output grew sharply. Panellists attributed the rise in business activity to favourable economic conditions.

Companies observed a renewed expansion in new export orders during August. Growth was recorded for the second time in the past five months. Opportunities arising from new export markets were frequently linked by panellists to stronger international demand for Saudi Arabia’s products and services.

According to the survey, firms faced capacity pressures for the tenth successive month and raised payroll numbers accordingly. The rate of job creation slowed to the weakest since April, however.

Companies purchased greater quantities of inputs during August. As a result, inventories were accumulated at the sharpest rate in the survey history.

Firms faced higher cost burdens during August, with both purchasing prices and staff salaries rising further. Consequently, firms passed on higher input costs to consumers. However, the pace of output price inflation was only marginal.

Although the level of positive sentiment dipped to the lowest since October 2016, firms retained positive expectations over the 12-month outlook for output. Optimism was rooted in forecasts of further improvements in market demand.