Saudi non-oil private sector growth hits 3-month low in November

The Saudi non-oil private sector growth hit three-month low in November despite an increase in new orders and fastest rise in export sales since May, latest data shows.

The headline seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI), which hit 57.7 in October, dropped to a three-month low 56.9 in November, reflecting a sharp improvement in the health of the non-oil private sector economy in line with the average recorded over the 12-year series.

Business activity rose at one of the fastest rates since the start of the Covid-19 pandemic, as firms enjoyed strong demand and modest price pressures. A softer rate of new business growth meant that the overall uplift in economic conditions was the least marked since August, which played a part in dampening firms’ expectations for future activity.

David Owen, economist at IHS Markit, said the Saudi Arabia PMI continued to signal a strong end to the year for the non-oil economy.

“Despite slipping to a three-month low, new business growth was rapid overall, whilst activity expanded at one of the quickest rates since the start of the pandemic,” Owen said in a statement to Khaleej Times on Sunday.

He said another key indicator — backlogs of work, signalled that the capacity gap registered since February 2020 had narrowed to its smallest so far, suggesting that higher demand levels are starting to put pressure on businesses.

“Jobs growth remained disappointingly mild, with many firms choosing not to expand their workforces amid a weak level of optimism for future activity. The threat of future Covid-19 waves continued to promote a cautious outlook, leading to a decline in the number of firms expecting output to expand over the next year,” Owen said.

New Orders Index

The largest component of the headline PMI is the New Orders Index, which fell for the second month in a row from September’s seven-year high. Despite this, the index continued to indicate a robust upturn in new business volumes that was stronger than most of the recovery period since the initial Covid-19 lockdown.

Survey panellists linked higher sales to a continued return to normal economic conditions and a boost to tourism from relaxed travel measures. Foreign demand also strengthened as new export orders rose to the greatest extent since May. Subsequently, business activity in the non-oil private sector rose sharply midway through the final quarter, with the rate of growth only slightly weaker than October’s near four-year high.

Cost pressures faced by non-oil companies remained modest in November, with the rate of inflation ticking down for the first time since August. Input cost inflation was largely passed through to consumers, as latest data showed a broadly similar rise in output charges.

“The outlook for the coming year weakened to a three-month low in November, in line with a softening of new business growth. The degree of optimism was also far lower than pre-Covid trends, as many companies remained cautious about the strength of the economic recovery and possible future waves of the virus,” according to the IHS Markit.

Egyptian business activity declines

Meanwhile, a sharp rise in business costs continued to drive higher selling prices and lower demand across the Egyptian non-oil economy last month. New business fell at the quickest pace for six months, leading to a decrease in output as well as renewed cuts in employment and purchasing.

The headline seasonally adjusted IHS Markit Egypt Purchasing Managers’ Index (PMI) was unchanged at 48.7 in November, indicating a moderate deterioration overall. The index has now posted below the 50.0 neutral mark for 12 successive months.

The decline in business conditions was led by a reduction in output levels in November. Activity fell for the third month in a row, with the rate of contraction largely similar to that seen in October, according to the IHS Markit.

Supply disruptions, inflation

“Inflationary pressures and supply shortages were again the most prominent depressors of Egypt’s non-oil economy in November. Output was down for the third month in a row, matched by a third consecutive decline in new business as higher selling prices deterred client spending in the domestic economy,” Owen said.

The HIS Markit panellists mentioned that a loss of client demand and slowdowns due to global supply chain issues were often behind the downturn. Companies noted that higher selling prices often deterred customer spending in the domestic market. Conversely, new export business rose for the first time since August.

“Increased shipping and energy prices continued to burden firms with rising input costs, leaving them to fight for profit margins through a sharp increase in charges. Whilst easing from October, the rate of output price inflation was the second-quickest since mid-2018, providing more ominous signs about the trajectory of consumer prices,” Owen said.

Panellists noted that the sustained fall in new orders had reduced workloads and led them to leave vacant job positions open. With staff capacity down, backlogs of work increased at the fastest rate since November 2020. Higher inflation expectations led firms to predict a subdued improvement in activity over the upcoming year. The overall degree of sentiment fell for the second month running to its lowest level in 12 months.

— muzaffarrizvi@khaleejtimes.com