Emirates NBD Saudi Arabia PMI®
January sees strongest improvement in business conditions for 13 months
Riyadh, February 5th, 2019: Today sees the release of January data from the Emirates NBD Purchasing Managers’ Index® (PMI®) for Saudi Arabia. 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 Arabian private sector.
Commenting on the Saudi Arabia PMI® survey, Khatija Haque, Head of MENA Research at Emirates NBD, said:
“The headline Emirates NBD PMI for Saudi Arabia rose to its highest level in more than a year in January. The main driver was an acceleration in new order growth, which appears to have been domestically driven, as export orders remained broadly flat month-on-month. Some of the growth in new orders was likely due to price discounting: output prices fell by the most since February 2018. Firms were able to reduce selling prices as their purchasing costs also declined in January.
“Output increased at a similar rate to December. The output index was slightly higher in January than in Q4 2018, but is still below the historical average of 63.0, suggesting that growth in output is still weaker than in previous years. Firms increased their quantity of purchases in January, probably reflecting stronger order growth, and stocks of pre-production inventory also rose the most since September 2018.
“The PMI survey showed only a modest rise in private sector jobs and wages last month, with 2.5% of firms surveyed reporting increased hiring and 2% reporting wage increases.
“Business optimism about future output was the highest in more than five years in January 2019. The government has announced an ambitious budget for this year, with expenditure projected to rise more than 7%, as well as a number of initiatives to boost investment and expansion in the non-oil sectors of the economy, which likely contributed to positive business sentiment. The recovery in oil prices last month after a sharp sell-off in December 2018 likely also helped.”
The main findings of the January survey were as follows:
- Headline PMI climbs to 56.2...
- ...supported by faster increases in output, new orders and employment
- Output prices fall again amid the steepest drop in costs in survey history
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 – 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 (generally a sign of less pressure on supply chains).
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. The month also saw the rate of job creation pick up from a 20-month low in December, albeit remaining only modest overall.
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 (albeit only modestly overall) due to a notable drop in purchasing costs. Average staff pay across the non-oil private was meanwhile 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. Business confidence towards growth prospects over the next 12 months improved for the second month in a row to reach the highest since December 2013.