Health of Saudi Arabia's non-oil private sector shows a strong improvement at the start of 2019, according to new business survey
The health of Saudi Arabia’s non-oil private sector showed a strong improvement at the start of 2019, driven by a surge in new orders and a subsequent rebound in both output and employment, according to a new business survey.
The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) showed that businesses also reported stronger optimism towards the outlook for activity in 2019.
A drop in firms’ operating expenses, linked to falling purchasing costs, supported the continuation of the recent sequence of output price discounting which extended to a third straight month, it said.
It added that January also saw the rate of job creation pick up from a 20-month low in December, albeit remaining only modest overall.
The headline seasonally adjusted Emirates NBD Saudi Arabia PMI climbed to 56.2 in January, from 54.5 in December, its highest reading for 13 months.
The rise in the index reflected not only stronger growth in output, new orders and employment, but also a recovery in the rate of expansion in stocks of purchases. The only negative influence on the index came from the supplier delivery times component, which showed lead-times improving at a quicker rate which is generally a sign of less pressure on supply chains.
The survey said the main positive takeaway in January was an acceleration in the rate of new order growth to the quickest since December 2017. The upturn owed almost exclusively to stronger domestic sales, with inflows of new business from abroad remaining broadly unchanged from the previous month.
Stronger overall order books in turn drove a solid and accelerated increase in the level of output across Saudi Arabia’s non-oil private sector in January, with the rate of growth slightly above the average in the final quarter of 2018.
Businesses continued to use discounts as way to support sales at the start of the year. January saw average selling prices fall for the sixth time in the past seven months and at the quickest rate since last February.
Output price reductions were made easier by a fall in firms’ operating expenses, which decreased to the greatest extent since data collection began in 2009 due to a notable drop in purchasing costs. Average staff pay across the non-oil private was up slightly on the month.
Elsewhere, growth in purchasing activity recovered slightly from December’s record low, though was still relatively subdued by historical standards. Buying levels were raised not only to support higher output requirements, but also to help boost safety stocks amid positive forecasts for future business activity.
Expectations among Saudi Arabia’s non-oil private sector businesses towards future output remained strongly positive in January. The degree of optimism improved for the second month in a row to reach the highest in over five years.
Those companies that believed their business activity would rise over the next 12 months commented on plans for new and improved products, further discounts and positive forecasts for underlying demand.