Business conditions in Saudi Arabia’s non-oil private sector continued to improve at the start of the second quarter, with rates of expansion in new work and business activity gathering pace, according to a new survey.
Data from the Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) showed that firms were encouraged to engage in purchasing activity, which in turn led to the strongest accumulation in stocks of purchases in over four-and-a-half years.
Despite added pressure on operating capacity, the rate of job creation remained only marginal overall. Meanwhile, input cost inflation climbed to an eight-month high, but selling prices rose only fractionally amid competitive pressures.
The headline seasonally adjusted PMI rose from 56.4 in March to 56.5 in April. The latest reading was broadly similar to the average recorded in the opening quarter of 2017 and consistent with a robust improvement in business conditions across the sector. However, the PMI posted below its long-run series average of 58.3.
Tim Fox, head of research and chief economist at Emirates NBD, said: “This was another overall strong reading of Saudi Arabia’s non-oil private sector activity, with output and new orders growth both very firm in April.
“However, below the surface it remains clear that companies are having to work harder to generate these gains, with little capacity to increase employment and profit margins continuing to be squeezed.”
The survey said that underpinning the improvement in the sector was a sharper expansion in business activity. The rate of growth accelerated since March and was in line with its long-run trend. Panellists commented on stronger underlying demand and favourable economic conditions.
New business inflows rose sharply and at a faster pace than in the prior month. Anecdotal evidence indicated that firms’ sales and marketing efforts had supported the upturn in domestic demand. There were also mentions of new construction and development activities.
On the other hand, new export work declined for the first time in ten months, although the rate of contraction was marginal overall. Non-oil private sector firms in Saudi Arabia faced lower foreign demand and intense competition in external markets, according to respondents.
Firms continued to increase payroll numbers during April, but the rate of job creation remained marginal. Concurrently, outstanding business increased for the sixth consecutive month.
Latest data pointed to diverging price trends. Total input costs rose at the fastest pace in eight months. Inflationary pressures stemmed from a general increase in raw material prices due to increased demand. On the other hand, the rate of charge inflation eased to the weakest in the current six-month sequence of increases and was only fractional.