Saudi Arabia private sector output grows for first time in 7 months

Business Bureau, Gulf Today

September PMI data indicated a return to growth for the Saudi Arabia non-oil private sector, as the economy continued its path to recovery after the coronavirus (COVID-19) pandemic lockdown.

Indices for output, new business and exports all signalled renewed expansions at the end of the third quarter, while employment fell at the softest rate since March.

Saudi Arabia firms meanwhile saw a much weaker rise in input costs during the month, as the impact of a rise in VAT eased considerably since August. Output charges also rose more slowly.

The headline IHS Markit Saudi Arabia PMI is a composite singlefigure indicator of non-oil private sector performance. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.

Any figure greater than 50.0 indicates overall improvement of the sector.

The headline seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI) rose to 50.7 in September, indicating a slight improvement in the health of the non-oil private sector. After dipping to 48.8 in August amid a slowdown in sales, the latest reading marked the first monthly expansion since February, prior to the COVID-19 pandemic and lockdown restrictions. Supporting the expansion were positive readings for both the Output and New Orders sub-components, with both rising above the 50.0 no-change mark for the first time in seven months.

That said, the Output Index signalled only a marginal increase in private sector activity, and one that was much weaker than the series trend.

Commenting on the latest survey results, David Owen, Economist at IHS Markit, said: “Business activity in the Saudi Arabia non-oil private sector ticked up in September, supported by a return to sales growth as the economy started to find its footing after the COVID-19 lockdown. Despite some businesses continuing to see a drag from ongoing restrictions, most companies saw market conditions improve.

“In addition, the impact of a rise in VAT notably softened, after a sharp rise in prices and a dip in sales were seen in August. Cost inflation eased to just a marginal pace.

“Going into the final quarter of 2020, it is nonetheless clear that the economy has some way to go to fully recover. Output growth remains well below normal, and jobs are still falling, albeit at a slower rate. Firms will require consistent rises in sales to support a strong end to the year.” Saudi Arabia firms meanwhile saw a rise in new work in September, as panellists highlighted that the loosening of COVID-19 restrictions led to an upswing in demand. The upturn was supported by both an increase in foreign sales and reports of a bounce in domestic orders after VAT changes hit demand in August. Nonetheless, the rate of new order growth was only modest.

Job markets remained weak in September, as indicated by an eighth successive monthly fall in employment. The pace of reduction was the softest since March, however, amid an increase in output requirements and a slower drop in backlogs.

Meanwhile, there were further headwinds on supply chains as lead times lengthened the most for three months. Businesses often linked this to an increase in the time taken for imports to arrive.

On the pricing side, latest data indicated a far softer rise in cost pressures at the end of the third quarter, after several firms reported higher input prices in August due to a mark-up in VAT rates. As a result, output charges also rose more slowly, with some companies offering discounts in an effort to clear existing stocks.

In line with the improvement in business conditions, Saudi Arabia firms were more optimistic of an increase in output over the coming year. The degree of confidence improved only slightly from August, but was nevertheless the strongest seen for seven months.

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.

IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions.

IHS Markit has more than 50,000 business and government customers, including 80 per cent of the Fortune Global 500 and the world’s leading financial institutions.