Saudi Arabia’s business outlook for this year remains strong

Business Bureau, Gulf Today

Saudi Arabia’s non-oil private sector remained on a growth footing in December. Business activity, new orders and employment all expanded since the previous month.

In each case the rate of growth lost momentum in comparison to the previous survey period. As a result, 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 - slipped to 56.9 in December, from 58.3 in November.

The latest reading was well above the 50.0 no-change value, but signalled the weakest improvement in business conditions for five months. December data indicated that business activity growth eased for the second month running and was the slowest since October 2018.

Some firms commented on greater competition for new work and subsequent difficulties converting customer enquiries into sales. Where business activity growth was reported, this was often linked to new product launches and successful marketing strategies.

Total new business volumes increased sharply in December, but the pace of expansion moderated from the four-and-a-half year peak seen during November. Softer export sales were a headwind to overall demand, as signalled by a drop in new work from abroad for the first time since February.

Employment numbers increased for the ninth consecutive month across the non-oil private sector, albeit at only a marginal pace. Greater staff recruitment partly reflected rising pressure on business capacity, as suggested by a renewed increase in backlogs of work at the end of 2019.

Meanwhile, input buying expanded at a robust and accelerated pace in December. Higher levels of purchasing activity were linked to new order intakes and efforts to boost inventories.

Reflecting this, the latest survey indicated one of the strongest rises in stocks of purchases seen over the past two years.

On the price front, input costs increased only marginally during December. The rate of inflation was the slowest for four months, which largely reflected a slower rise in average staff salaries.

Non-oil private sector companies remain optimistic about their growth prospects for the next 12 months. The degree of positive sentiment slipped a little since November, but remained comfortably above the levels seen in the middle of 2019. Survey respondents cited hopes of an improvement in underlying economic conditions and a corresponding rise in new business opportunities.

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.