Kingdom’s non-oil sector expanding at a robust rate

The upturn in Saudi Arabia’s non-oil private sector was maintained at a steady rate in June, as highlighted by a further solid improvement in business conditions. 

Output and new orders both rose sharply, leading firms to raise their input buying at a marked pace. However, the respective rates of expansion remained subdued in the context of historical data. 
Weak job creation continued to undermine overall growth, as did falling exports. On the price front, input costs rose to the greatest extent in seven months, contributing in turn to a first increase in charges since October last year. 
The survey, sponsored by Emirates NBD and produced by 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 non-oil sector in Saudi Arabia is expanding at a robust rate, despite low oil prices, government spending cuts and more recently, higher interbank lending rates.”
Khatija Haque added: “Firms appear to be increasing operating efficiency, as jobs growth remains sluggish even as activity and new orders are rising.” 
Adjusted for seasonal influences, the headline 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 – posted 54.4 in June, down slightly from 54.8 in May.
The latest reading rounded off a second quarter which has seen moderate growth (54.5) in line with the average recorded in 2016 to date (54.4). However, the improvement in business conditions remained subdued when compared to the long-run series trend (58.6).
Both output and new orders continued to rise sharply in June. However, while output growth eased to a 32-month low, the rate of expansion in new work was little-changed from May’s five-month high. Underpinning new business gains were stronger marketing efforts. 
Some firms also pointed to the quality of their goods and services as a factor behind healthy demand.
Despite the expansion of total new work, exports remained an area of concern midway through 2016. New business from abroad fell for the third successive month, having previously risen back-to-back since the survey began in August 2009. That said, the latest reduction was only marginal.
Purchasing activity rose further in June, reflective of ongoing growth of the sector as a whole.
The rate of expansion was marked and broadly in line with that seen for output and new work. Pre-production inventories also increased, with some panellists commenting on expectations of future improvements in demand.
Meanwhile, the pace of job creation remained subdued in June. 
Continuing a trend seen throughout the second quarter, the latest rise was among the weakest recorded by the survey. 
Companies were nevertheless able to reduce backlogs for the first time in nearly three-and-a-half years. Some respondents indicated that they had become more efficient in production. Cost pressures intensified in June, driven by a moderate rise in purchase prices. 
The rate of purchase price inflation quickened to an eight-month high, but was still muted compared to the long-run average. Nonetheless, for the first time since last October, the rise in costs was sufficient to lead to increased charges.

Source: Arab News