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Sat 12 Jan 2019 01:02 AM

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Saudi private sector growth slows to 9-year low in 2018

Business optimism remains strong in Saudi Arabia for 2019, says Emirates NBD Purchasing Managers' Index

Saudi private sector growth slows to 9-year low in 2018
Looking ahead, business confidence towards growth prospects over the next 12 months improved to the highest in five years.

Saudi Arabia’s non-oil private sector grew at its slowest rate in nine years during 2018, according to the Emirates NBD Purchasing Managers’ Index (PMI) for the Gulf kingdom.

The headline PMI, which collects data from a monthly poll of business conditions in the private sector, averaged 53.8 during last year compared to an annual average of 58.0 over the previous eight years.

In December, the PMI fell to 54.5 from a year-high of 55.2 in November, with the rate of job creation slipping to a 20-month low.

Daniel Richards, MENA economist at Emirates NBD, said: “This indicates a fairly weak expansion in the non-oil private economy as compared to previous years, even despite the pick-up in oil prices enjoyed earlier in 2018.

“While output dipped from its recent peak in November, it remained comfortably above the 2018 average of 57.6, coming in at 58.2. New orders followed a similar trend, falling from November but at 58.4 still stronger than seen earlier in the year.

"However, new export orders remained weak implying that the bulk of new orders are being driven by domestic demand, achieved through continued price discounting. Output prices decreased at a marginally faster pace in December, as firms continued to cite strong domestic competition."

He added: “Business optimism remains strong in Saudi Arabia, and the future output index climbed to the highest reading in five years. 53.8 percent of respondents expect that output will be higher in 12 months’ time, with no firms expecting a deterioration in conditions.”

Despite easing since November, output growth in December remained quicker than the average over 2018 as a whole. The survey indicated that business activity had risen in part due to stronger demand, with companies noting a further – albeit slightly slower – increase in inflows of new business.

New export orders were up for a third straight month but only fractionally, indicating that the pick-up in demand was centred on the domestic market.

While underlying market conditions were reported to have improved, the survey continued to point to strong competitive pressures across the private sector and, on average, firms reduced selling prices in order to help support sales.

Elsewhere, latest data showed the continuation of a weak rate of employment growth across the non-oil private sector. December’s increase in staffing numbers was in fact the smallest since April 2017, with the vast majority of companies keeping headcounts unchanged from the month before.

Looking ahead, business confidence towards growth prospects over the next 12 months improved to the highest in five years. Firms reported hopes of a sustained improvement in market conditions, and foresee new products, competitive pricing and greater market activity leading to output growth.