Business conditions in Saudi Arabia’s non-oil economy improve in January

Purchasing managers' indexes in the UAE and Egypt, however, fell last month, IHS Markit says

FILE- In this Sept. 22, 2019 file photo taken with a slow shutter speed, vehicles pass in front of the landmark Kingdom Tower, at left, during celebrations marking Saudi 89th National Day, in Riyadh, Saudi Arabia. The United States’ Gulf allies have pushed for hawkish policies by Washington to pressure, isolate and cripple Iran, but this high-stakes strategy is now being put to the test by the surprise U.S. killing of Iran’s most powerful military commander. As the region braces for what comes next, Saudi Arabia and the UAE are calling for de-escalation. (AP Photo/Amr Nabil, File)
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Business conditions in Saudi Arabia's non-oil private sector improved overall in January, but at a slower rate as strong competition and cautious consumer spending pulled back growth.

The seasonally-adjusted Purchasing Managers' Index – a gauge designed to give an overview of operating conditions in the non-oil private sector economy – slipped to 54.9 in January in the kingdom, from 56.9 in December. The reading remained well above the 50 level, indicating economic expansion.

Business activity in Saudi Arabia increased last month, but the rate of expansion was similar to that of the 14-month low seen in December. The latest slowdown largely reflects a weaker contribution from the new orders component of the PMI, according to the survey.

"January data suggested that non-oil private sector companies remained in expansion mode. However, business activity was again constrained by a slowdown in new order growth,” Tim Moore, an economics associate director at IHS Markit, which compiles the survey, said.

“Non-oil firms in Saudi Arabia are optimistic about the business outlook for 2020, but levels of confidence have dropped since December, which acted as a brake on staff hiring and input buying at the start of the year."

The latest rise in sales volumes was the softest rate of growth recorded in 13 months. Export sales also dipped slightly, reflecting subdued business conditions in overseas markets, according to the survey.

Looking ahead, businesses in Saudi Arabia remained confident about growth prospects in the coming 12 months, according to the survey. The degree of positive sentiment, however, slipped in January from that seen in December. It was the lowest for almost one-and-a-half years.

Meanwhile, a decline in new orders retracted growth in the UAE's non-oil private sector in January. It is the first time the sector has not registered growth in a decade, according to the PMI survey by IHS.

The headline PMI number in the second-biggest Arab economy dropped to 49.3 in January from 50.2 in December, signalling a slight deterioration in business conditions. Workforce numbers also dropped, while selling prices were lowered for the sixteenth month running.

On the demand side, total new orders fell as companies struggled to gain sales momentum. Orders from abroad, however, grew for the third month in a row and at a faster pace than in December, according to the survey.

UAE companies responded by leaving output levels unchanged in January, ending a sequence of growth that had lasted for almost a decade.

"Despite lower prices, new orders fell for the second time in three months in January, adding extra pressure on businesses and halting output growth,” said David Owen, an economist at IHS Markit.

"Looking ahead, it is hoped by many firms that the upcoming Expo 2020 will restore new business volumes and kick-start activity. Another bright note is growing momentum in export sales.”

In Egypt, non-oil private sector economy weakened at a much faster rate in January as sales fell on the back of a sharp reduction in business activity. Employment and purchases also declined in the most populous Arab nation.

Egypt’s PMI gauge fell to a three-year low of 46 in January, from 48.2 in December. The health of the sector has now deteriorated in each of the past six months.

Contributing to the downturn was a sharp contraction in output, with the rate of decline accelerating to the fastest since January 2017. The fall in new orders was also the quickest in nearly three years. Export demand also softened for the fourth month running, according to the survey.

"January PMI data brought unwelcome news for Egypt's non-oil private sector,” Mr Owen said. “Firms squarely linked this [drop in PMI index] to falling sales, with customers increasingly cautious about their expenditure and new contracts dwindling."

On the positive side, business expectations remained positive in January, despite dropping to a four-month low. Respondents hoped that lower prices would drive sales and activity higher in the coming months, Mr Owen said.