Saudi Arabia’s business morale at three-month high in Q3

Business Bureau, Gulf Today

Saudi Arabia’s non-oil private sector regained momentum midway through the third quarter of this year. Stronger domestic demand drove a faster upturn in output, which recovered from July’s five-month low.

Business confidence among companies in Saudi Arabia’s non-oil private sector picked up to a three-month high, amid forecasts of stronger customer demand in the year ahead.

On the price front, overall input costs decreased for the fourth time in the past eight months, driven by declines in both purchasing costs and wage bills.

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 - rose to 57.0 in August, from 56.6 in July. This brought the headline index closer to its long-run survey average of 57.6 (since August 2009).

The upturn in business conditions seen in August was led by a slight quickening of overall new order growth. Export sales also increased solidly, though at a slower pace than in July. As a result, domestic markets were the main impetus for inflows of new business.

Increased demand resulted in higher overall output in August, with the rate of growth quickening from July. August also saw a stronger increase in purchasing activity as firms sought to bring their buying levels into line with higher output requirements and build up inventories. Businesses that raised their stocks of purchases similarly commented on stronger demand conditions in August.

Confidence towards the outlook for activity over the coming year Output growth picks up from July Renewed fall in average input costs Business confidence at three-month high Comment Commenting on the latest survey results, Amritpal Virdee, Economist at IHS Markit, said: “August PMI data for Saudi Arabia revealed a stronger improvement in economic conditions and when combined with the relatively solid expansion seen in July, should help support a faster quarter-on-quarter expansion for the third quarter of 2019.

“A bright spot was a quickening of both output and overall new order growth, which outweighed weaker job creation and helped improve overall business conditions at a faster rate.

“Business margins were provided some relief with a welcome fall in input costs. Furthermore, the survey’s forward-looking gauge, the Future Output Index, rose to a three-month high on the back of new product initiatives and positive forecasts for underlying demand.”

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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.