Saudi private sector growth falls to 6-month low in May

Data from the Emirates NBD Saudi Arabia PMI also shows that cost inflation dropped to a survey-record low

Saudi Arabia's non-oil private sector remained comfortably in expansion territory during May, supported by sharp expansions in output and new orders although in both instances rates of increase eased.

Data from the Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) also showed that cost inflation dropped to a survey-record low.

Consequently, selling prices were lowered marginally. Meanwhile, new export orders fell for the second month in succession, reflecting intense competition in external markets.

The headline seasonally adjusted PMI edged down to 55.3 during May (from 56.5 in April). Despite falling to a six-month low, the latest reading signalled a robust improvement in the health of the sector.

Khatija Haque, head of MENA Research at Emirates NBD, said: “The decline in Saudi Arabia’s PMI in May was largely due to slower new orders growth, with export orders in particular showing weakness. 

"While the non-oil sector has seen stronger growth so far this year compared to 2016, the downside risks to overall GDP growth have increased with the extension of OPEC’s production cuts for a further 9 months.”    

Central to the latest improvement in business conditions was a sharp increase in output. Panellists commented on strong underlying demand and more projects. Nevertheless, the pace of growth was at a six-month low.

Underlying data suggested that growth in total new work was led by the domestic market as new export orders fell for the second consecutive month. Anecdotal evidence pointed to competitive pressures globally.

Payroll numbers increased further in May, thereby stretching the current period of employment growth to 38 months. The rate of job creation was the strongest since August 2016, but only marginal.

In response to greater output requirements, firms engaged in further input buying. In spite of easing to a 13-month low, the rate of growth was sharp overall. Subsequently, stocks of purchases continued to increase.

The degree of positive sentiment climbed to the highest in over a year across the Saudi non-oil private sector. This reflected new projects in the pipeline, as well as expectations of further improvements in demand.

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