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Saudi Arabia PMI: August signals strongest upturn in a year

SAUDI ARABIA.  Saudi Arabia’s non-oil private sector continued on its upward trajectory in August, with business conditions improving to the greatest extent in a year. Output and new business remained the key growth drivers – both rose sharply and more quickly than in July.

Employment and input stocks also increased, with a number of companies looking to expand capacity in line with rising workloads. Meanwhile, price pressures intensified in August. The rate of cost inflation accelerated to a ten-month high, which led panellists to raise their charges. The rise in selling prices was only modest, however. 

The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the Saudi private sector.

Commenting on the Emirates NBD Saudi Arabia PMITM, Khatija Haque, Head of MENA Research at Emirates NBD, said:  “The rise in the Emirates NBD Saudi Arabia PMI to the highest level in a year is encouraging, although we note that the average PMI so far this year is still below 2015, indicating a slower rate of private sector growth.  Stronger export demand has helped support overall new orders, and more firms have increased hiring in August as well.  Record high oil production in July and August likely supported activity in the manufacturing sector over the summer.”

Key Findings

–  Sharp expansions of output and new business

–  Companies step up purchasing as a result

–  Cost pressures pick up to ten-month high

The headline seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index™ (PMI) – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – signalled a further acceleration in growth during August. Up from 56.0 in July to 56.6, the latest reading was a one-year high. That said, whereas business conditions improved strongly in the context of recent data, the index was still below its long-run series average (58.5).

Data pointed to another substantial rise in output during August. The rate of expansion picked up slightly since July, and was the most marked in nearly a year.

Activity was bolstered by a further improvement in underlying demand, which was in turn reflected by faster growth of new business. The latest increase was the quickest since last November. As well as stronger demand, firms commented on new projects and enhanced marketing strategies.

Total new work was supported by gains across international markets in August. New export orders rose for the second successive month and at the strongest pace so far in 2016.

On the jobs front, the rate of hiring accelerated to an 11-month high. Panellists indicated that they had raised employment in response to greater business requirements. However, the rise in staff levels was only moderate overall, and insufficient to prevent an accumulation of backlogs. The amount of unfinished work rose for the first time in three months.

With output and new orders increasing markedly, purchasing activity rose further in August. The pace of growth quickened to an 11-month high, ensuring that input stocks continued to build up.

Firms upped their quantities of purchases in spite of higher costs during August. Purchase prices rose at the fastest pace since last October and, combined with greater salaries, led to a pick-up in the overall rate of cost inflation.

Increased costs contributed to a rise in charges set by Saudi Arabia’s non-oil private sector businesses. The rate of inflation was strong relative to the past two years, but still weaker than the average over the survey’s entire history. 

The next Saudi Arabia PMI Report will be published on October 5th 2016 at 07:15 (RIYADH) / 04:15 (UTC)

About the Emirates NBD Saudi Arabia Purchasing Managers’ Index
The Emirates NBD Saudi Arabia Purchasing Managers’ Index is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private sector companies, which have been carefully selected to accurately represent the true structure of the Saudi non-oil economy, including manufacturing, services, construction and retail.

The panel is stratified by Standard Industrial Classification (SIC) group, based on industry contribution to GDP. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the ‘Report’ shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion’ index. This index is the sum of the positive responses plus a half of those responding ‘the same’.

The Purchasing Managers’ Index™ (PMI™) is a composite index based on five of the individual indexes with the following weights: New Orders – 0.3, Output – 0.25, Employment – 0.2, Suppliers’ Delivery Times – 0.15, Stock of Items Purchased – 0.1, with the Delivery Times index inverted so that it moves in a comparable direction.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease. Markit do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series.

Photo Caption:  Khatija Haque, Head of MENA Research at Emirates NBD

About Emirates NBD
Emirates NBD is a leading banking Group in the region. As at 30th June 2016, total assets were AED 425.8 Billion, (equivalent to approx. USD 116 Billion). The Group has a significant retail banking franchise in the UAE and is a key participant in the global digital banking industry, with over 90 per cent of all financial transactions and requests conducted outside of its branches.

The bank currently has more than 220 branches and over 955 ATMs and CDMs in the UAE and overseas and a large social media following, being the only bank in the Middle East ranked among the top 20 in the ‘Power 100 Social Media Rankings’, compiled by The Financial Brand. It is a major player in the UAE corporate and retail banking arena and has strong Islamic Banking, Global Markets & Treasury, Investment Banking, Private Banking, Asset Management and Brokerage operations.

Ratings agency Moody’s recently upgraded the bank’s long-term deposit and senior unsecured ratings to A3 and its baseline credit assessment (BCA) to ba1. In addition to the bank’s strong funding and liquidity profile, the upgrade reflected the bank’s improved loan quality, and its higher loss-absorption buffers.

The Group has operations in the UAE, Egypt, the Kingdom of Saudi Arabia, Singapore, the United Kingdom and representative offices in India, China and Indonesia.

The Group is an active participant and supporter of the UAE’s main development initiatives and of the various educational, environmental, cultural, charity and community welfare establishments.

For more information, please visit: www.emiratesnbd.com

About IHS Markit
IHS Markit (Nasdaq: INFO) 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 key business and government customers, including 85 percent of the Fortune Global 500 and the world’s leading financial institutions.  Headquartered in London, IHS Markit is committed to sustainable, profitable growth.

For more information, please visit: www.ihsmarkit.com

 

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