Saudi non-oil private sector economy grows on new orders

Business Bureau, Gulf Today

November saw a further improvement in the health of Saudi Arabia’s non-oil private sector, with latest IHS Markit PMI data indicating a quickening of growth momentum. This was driven by the sharpest rise in new work since April 2015. Employment among non-oil private sector companies also rose in November, though the rate of job creation was marginal and subdued by historical standards.

The headline seasonally adjusted IHS Markit 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 - posted 58.3 in November, up from 57.8 in October and the highest in over four years.

Headline Purchasing Managers’ Index (PMI) climbs to 51-month high despite softer output growth and the inflows of new business rise at sharpest pace since April 2015.

Underpinning the positive PMI reading was a further increase in output. Though steep, the rate of expansion eased to the slowest in four months during November.

In contrast to the trend for output, inflows of total new business increased at a faster pace during November. The rate of growth was steep and the quickest since April 2015. This partly reflected a further pick-up in new export orders which increased at a sharper pace than in October (but still far more slowly than overall new business).

While the picture for new business improved, latest data showed that job creation across the non-oil private sector remained lacklustre. November’s rise in employment was only marginal and unchanged from October’s increase. This was consistent with a lack of pressure on business capacity, as referenced by work outstanding decreasing for the second time in the past Headline PMI climbs to 51-month high despite softer output growth.

Inflows of new business rise at sharpest pace since April 2015 Job creation across non-oil private sector remains lackluster.

Commenting on the latest survey results, Amritpal Virdee, Economist at IHS Markit, said: “November’s PMI data for Saudi Arabia revealed a stronger improvement in underlying economic conditions and, when coupled with the recent improvements in growth momentum, point to a faster rate of non-oil GDP expansion for the fourth quarter of 2019.

“A bright spot was a quickening of overall new order growth, which reached its fastest pace since April 2015. Stronger demand conditions helped outweigh continued weakness in job creation and slower output growth.

“Business margins were provided with some relief from a slower rise in input costs. Furthermore, output charges increased during November, reversing October’s slight fall.

“Overall, the private sector economy is well-placed as we look forward to 2020, with the survey’s forward-looking gauge, the Future Output Index rising to a nine-month high on the pace of new product initiatives and more positive forecasts for underlying demand” IHS Markit Saudi Arabia PMI said

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 etailed 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(tm) (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. November 2019 data were collected Nov.12-21, 2019.