Saudi Arabia’s non-oil sector recovers in August to reach new high

Growth in Saudi Arabia’s private non-oil sector has improved in August compared to the previous month, reaching its highest point to date this year, according to a survey. The Emirates NBD/IHS Markit Purchasing Managers Index (PMI) — a measure of non-oil business conditions — increased to 55.1 in August from 54.9 in July.
Any reading below 50 indicates a contraction in economic growth.
“The big picture is that Saudi Arabia’s non-oil sector has recovered from its soft start to the year,” read a note on Tuesday from Jason Tuvey, senior emerging markets economist at Capital Economics.
A breakdown of the survey shows measures of output and new work increased to their highest levels to date this year at 59.7 and 59 respectively. Still, employment growth remained “modest,” with only 2 percent of firms surveyed reporting increased hiring.
Businesses surveyed were optimistic about their future output, with 17 percent anticipating output to be higher in a year’s time.
While the recovery in growth will be welcomed by the Kingdom, the rate of expansion to date — measured by the average PMI reading for January through to August — is weaker compared with the same time last year and is the slowest on record, according to a note by Khatija Haque, head of Mena Research at Emirates NBD.
Saudi Arabia’s economy had a slow start to the year as it grappled with the introduction of value-added tax (VAT) and a cut in energy subsidies. The country’s PMI reading fell to an all-time low of 51.4 in April. A combination of increased government spending, including public sector bonuses, coupled with an improvement in oil prices, has helped to improve business conditions as the year progressed.
In the UAE, business conditions deteriorated for a second month in a row, with the country’s PMI reading falling to 55 in August compared with 55.8 in July.
“While this deterioration is worrying, we would note that the PMI remains broadly in line with its average over the past three years,” said Tuvey.
The PMI reading was dragged down in part by the decline in the employment reading, which fell to 49 in August. This signaled a slight average decline in jobs compared to the previous month. It is the first time the measure of employment has sunk below 50 since the survey began in 2009.
Emirates NBD said that while activity in the non-oil private sector is growing at a similar rate to last year, the growth is not generating higher wages or creating new jobs.
“As a result, we retain our view that private consumption is unlikely to contribute significantly to GDP growth this year, with government spending and investment, and net exports likely to be the engines of growth,” said Haque in a note.
Egypt’s measure for business conditions rose in August to 50.5 from 50.3 the previous month, ensuring it stayed above the 50 threshold for a second consecutive month.