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Abu Dhabi, UAEThursday 18 October 2018

Saudi Arabia's non-oil private sector growth cools off in September

The non-oil private sector growth slipped to the slowest pace in four months, according to Emirates NBD survey 

The non-oil private sector growth in Saudi Arabia slipped to the slowest pace in four months. AP
The non-oil private sector growth in Saudi Arabia slipped to the slowest pace in four months. AP

Saudi Arabia’s non-oil sector growth cooled off in September, slipping to the slowest pace in four months as activity was dragged down by slower output and new orders in the biggest Arabian Gulf economy, according to a survey.

The Emirates NBD Purchasing Managers’ Index (PMI) for Saudi Arabia eased to 53.4 in September down from 55.1 in August. A reading above the 50-mark indicates growth and below 50 signals contraction. The index is a composite indicator designed to give an overview of operating conditions in the non-oil private sector economy. The survey is sponsored by Dubai's biggest lender, Emirates NBD, and produced by IHS Market.

“The decline was due to softer growth in output and new orders, with new export orders contracting last month. Employment and inventory growth were also weaker in September, weighing on the headline PMI,” Khatija Haque, the head of Middle East and North Africa research at Emirates NBD, said.

The employment index for the kingdom, fell to 50.7 in September, the lowest since November 2017, as nearly 97 per cent of the firms surveyed indicated no change in staffing last month. Staff costs - a proxy for wages - declined marginally for the first time since April 2016, she said. Firms also cut selling prices for the third month in a row in September even as input costs rose. However, the rate of producer price inflation eased from August, she noted.

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Despite the softness in the September survey, the PMI for the third quarter was still higher than the first two quarters of this year. However this did not translate into faster employment growth.

“The September survey data points to slower growth in the non-oil private sector, which is surprising given the backdrop of rising oil prices and sharply higher oil production since June. However, we remain optimistic that sustained higher oil production will support faster expansion in the non-oil sectors in Q4, particularly manufacturing, transport and logistics,” Ms Haque said.

This view, she said, appears to be shared by many of the firms surveyed, as nearly 39 per cent of managers expect their output to be higher in 12 months, the most since the May survey.

Output across the non-oil private sector increased at a slower rate during September, as inflows of new orders also slowed, according to anecdotal evidence. The rate of growth in output eased to the lowest seen since April, and registered below the long-run average.

Client demand for goods and services across Saudi Arabia’s non-oil private sector, however, rose during September, extending the current sequence of growth to five months. That said, the rate of growth eased in the latest survey, with September’s rise being the second-weakest in the same period, according to the survey.