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Abu Dhabi, UAEFriday 20 July 2018

Saudi non-oil economy grows to its highest so far this year

However, job creation remained weak for the month June, notes survey by Emirates NBD

Riyadh city. Saudi Arabia is proposing a raft of moves to boost foreign investment. AP
Riyadh city. Saudi Arabia is proposing a raft of moves to boost foreign investment. AP

Saudi Arabia’s non-oil sector grew at its fastest pace so far this year, on the back of an upturn in output and new order growth, according to an index compiled by Emirates NBD and IHS Markit.

The seasonal headline Purchasing Managers' Index – an indication of the operational health of the non-oil private sector economy – rose to 55 in June, up from 53.2 the previous month, according to the survey.

"Firms had been anticipating this for several months, as reflected in the very strong ‘future output’ readings since February," said Emirates NBD Mena research head Khatija Haque. "It isn’t surprising then that the future output index declined sharply in June, with most firms now expecting their output to be relatively stable over the next 12 months,”

Saudi Arabia, the biggest economy in the Middle East, is on a rebound this year, buoyed by a recovery in oil prices in the first half of the year. GDP for the first quarter grew 1.2 per cent. The non-oil economy, meanwhile, grew 1.6 per cent for the same period, compared with 1.3 per cent in the previous quarter, according to government data.

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A PMI reading above 50 indicates expansion, and below indicates contraction. The Saudi reading pointed to a marked improvement in business conditions, although the figure was below the average registered when the survey began in August 2009.

Output growth accelerated in the second quarter – at the highest rate since December – noted the survey. New orders in the kingdom also improved at the fastest rate in six months for June, with business sourced from both domestic and foreign sources.

The survey noted that foreign business growth had returned for the first time since January.

Backlogs of work increased at the fastest pace in 11 months in June, reflecting higher inflows of orders and built-up capacity pressures in the non-oil sector.

In spite of the growth in orders, job creation remained essentially flat, rising only fractionally above figures registered in May. New hires remained at a rate below historical average, noted the survey.

Input price pressures faced by Saudi companies also increased at their fastest pace in four months in June, which could be attributed to rising raw material prices and higher cost burdens.

Optimism for future growth prospects appear to have eased to a nine-month low, the survey reported, with weaker growth anticipated.