Saudi private sector growth slows to near 9-year low

New survey reveals subdued increases in new orders and employment in March
Saudi private sector growth slows to near 9-year low
By Staff writer
Tue 03 Apr 2018 02:03 PM

Business conditions in Saudi Arabia improved at the slowest rate for nearly nine years in March, largely reflecting subdued increases in new orders and employment, according to a new survey.

Business confidence, however, remained strong in the non-oil private sector and output growth picked up. Furthermore, input cost inflation continued to ease from the recent peak seen at the start of 2018.

The Saudi Arabia Purchasing Managers' Index (PMI) survey fell to 52.8 in March, rounding off the weakest quarter recorded since the survey began in August 2009.

Daniel Richards, MENA economist at Emirates NBD, said: “The fall in the pace of expansion in Saudi Arabia’s non-oil private sector to its lowest levels on record last month will prompt firms to continue price discounting in a bid to galvanise demand; output prices were below the neutral 50.0 level which delineates contraction and expansion for the second month running in March.

"Despite the sluggish growth at present, business optimism at 71.0 remains far above the 12-month average of 61.4.”  

Non-oil private sector companies reported an uptick in output growth in Saudi Arabia. Although marked overall and the strongest registered in the year-to-date, the expansion was subdued in the context of historical data.

Incoming new business grew at the slowest rate on record during March. The expansion was only fractional overall. According to anecdotal evidence, the recent introduction of VAT continued to dampen customer demand, while panel respondents also commented on competitive pressures.

Furthermore, foreign demand deteriorated for the second month running, albeit fractionally. In fact, the majority of respondents reported no change in new export orders since the preceding survey.

Continuing the trend seen over the past four years, job creation was registered once again in March. Although the rate of employment growth eased further since January’s recent peak, the expansion was above the average seen over the past 12 months.

In terms of prices, input cost inflation eased to a ten-month low during the latest survey. The rate of increase was well below its long-run average and only slight overall. Both raw material and wage inflation softened at the end of the first quarter.

As a result, companies in the non-oil private sector continued to offer price discounts, albeit at only a fractional rate overall. Some businesses noted that they reduced output charges to stimulate client demand.

Although business confidence eased from the 46-month high registered in February, optimism remained strongly positive overall. An expected economic upturn alongside anticipated new project wins underpinned positive sentiment in March.

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