Saudi business conditions improve at fastest pace since August 2015

Business Bureau, Gulf Today

Saudi Arabia’s non-oil private sector entered the final quarter of the year on a stronger footing, with business conditions improving at the fastest pace since August 2015.

Output and new order growth quickened in October, with the latter rising at the sharpest rate since June.

On the price front, average selling prices declined for the second time in the past five months, as firms sought to stimulate additional customer orders.

The headline seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers’ Inded (PMI) – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – rose to 57.8 in October from 57.3 in September. The index was the highest since August 2015 and signalled a sustained improvement in growth momentum.

The upturn in business conditions seen in October was led by a steep and accelerated increase in new business - the sharpest seen since June. Export sales also rose, though at a slower pace, indicating that the main impetus continued to come from the domestic market.

Increased demand resulted in higher overall output in October, with the rate of growth accelerating for the third month in a row to the highest since December 2017.

October also saw a sharp 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.

New business rises at quickest pace since June Output prices fall for second time in the past five months Commenting on the latest survey results, Amritpal Virdee, Economist at IHS Markit, said: “Growth momentum continued to build during October, with the headline PMI posting its highest figure since August 2015. Output and new orders expanded at faster rates, mostly driven by domestic sales.

“There were also signs of export conditions becoming more supportive, with panellists stating that they had seen an overall improvement in foreign demand conditions.

“However, employment growth was marginal and slowed from September, as firms remained cautious about taking on additional staff.

“At current levels, the PMI is indicative of GDP expanding at an annual rate of around 4 per cent, which would be a notable acceleration in growth from the start of 2019.” The intellectual property rights to the data provided herein are owned by or licensed to IHS Markit.

Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without IHS Markit’s prior consent. IHS Markit shall not have any liability, duty or obligation for or relating to the content or information (data) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall IHS Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers’ Index and PMI are either registered trade marks of Markit Economics Limited or licensed to Markit Economics Limited.

IHS Markit is a registered trademark of IHS Markit Ltd and/or its affiliates.

The IHS Markit Saudi Arabia PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. The sectors covered by the survey include manufacturing, construction, wholesale, retail and services.

Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted.

The headline figure is the Purchasing Managers’ Index (PMI). The PMI is a weighted average of the following five indices: New Orders (30 per cent), Output (25 per cent), Employment (20 per cent), Suppliers’ Delivery Times (15 per cent) and Stocks of Purchases (10 per cent). For the PMI calculation the Suppliers’ Delivery Times Index is inverted so that it moves in a comparable direction to the other indices.

Underlying survey data are not revised after publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series.