Saudi non-oil private sector posts growth in 1Q of 2017

newsimageRIYADH — Saudi Arabia’s non-oil private sector remained entrenched in growth territory at the end of the first quarter of 2017, with sharp rates of expansion in new orders and output underpinning the overall upturn. As a result, companies raised input buying to the greatest extent in 18 months. Despite greater output requirements and increasing backlogs, companies raised their payroll numbers only marginally. Meanwhile, input price inflation climbed to a seven-month high. The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the Saudi private sector. Commenting on the Emirates NBD Saudi Arabia PMITM, Tim Fox, Head of Research and Chief Economist at Emirates NBD, said: “Saudi Arabia›s non-oil economy appears to be holding up well amidst ongoing reductions in oil production. Unlike previous periods of expansion however, gains in output and new orders are not being matched by new job growth, while competitive pressures appear to be keeping a lid on the prices firms are able to charge to customers.” The headline seasonally adjusted Emirates NBD 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 from February’s 18-month high of 57.0 to 56.4 in March. Nevertheless, the latest reading was consistent with a marked improvement in the overall health of the sector. Moreover, the PMI average for the first quarter of 2017 (56.7) was the highest in one-and-a-half years. The above-50.0 reading for the headline index reflected steep increases in output and new work, though the respective rates of expansion eased since the preceding month. Anecdotal evidence indicated improvements in economic conditions, new projects, more construction work and increased marketing efforts. The rise in new business was mainly driven by domestic demand as growth of new export orders eased to the weakest in four months and was modest. Firms that reported higher levels of new work from abroad, commented on increased marketing efforts, good quality of products and internationally competitive prices offered. In response to greater output requirements, firms raised payroll numbers. However, the rate of job creation was only marginal. This in turn led to higher volumes of outstanding business. In fact, the rate of accumulation was marked as existing resources were insufficient to cope with greater workloads. Purchase prices rose at a solid pace in March, which firms attributed to greater demand for raw materials. However, businesses were restricted in their ability to fully pass on higher cost burdens to clients amid intense competition. Higher volumes of incoming new business prompted firms to raise their input buying. The pace of expansion accelerated to the strongest in one-and-a-half years. Concurrently, the rate of accumulation of input stocks quickened to a 19-month high. A number of firms commented on more projects and forecasts of further improvements in demand as the main factors leading to stock-building initiatives. Moreover, firms remained strongly optimistic toward output over the coming year due to projects in the pipeline, construction work and expectations of further improvements in market demand.