x Abu Dhabi, UAEFriday 28 July 2017

Saudi business growth surges to six-month high

Business activity in Saudi Arabia rose at its fastest in six months last month as higher government spending drove domestic demand.

Business activity growth in Saudi Arabia surged to its highest level in six months last month as higher government spending drove domestic demand.

Private sector expansion also accelerated in the UAE but at a slower rate, data showed from HSBC's purchasing managers' index for the two countries.

The data suggests Saudi's economy is in stronger health.

"The robust print (in Saudi Arabia) was driven in large part by strong gains in current output, but new orders also rose strongly, suggesting that the economy is likely to maintain momentum over the months ahead," Middle East economists Simon Williams and Liz Martins wrote in a research report yesterday.

Saudi King Abdullah unveiled a US$130 billion (Dh577bn) spending package last year that included public employees receiving a bonus worth two months' salary.

Last month's data indicated that some of that spending is helping to propel the domestic economy, even as the global outlook remains fragile.

New domestic orders were far higher than export orders during last month.

The headline PMI passed 60 points last month, an increase of more than two points and the highest score since July last year.

HSBC said there was some evidence in the data to show that strengthening demand was beginning to pressure capacity. In the months ahead, the constraints risked pushing up prices, it said.

In the UAE, the headline PMI index rose from 51.7 December to 52.4 points last month. Last month's rise followed a slight weakening in the index at the end of last year as the reading fell to a four-month low.

"The headline number points to greater stability after a run of declines and its encouraging to see the uptick in new orders," said Mr Williams.

"Employment still looks soft, though, and continued weak output prices despite further gains in costs suggests there continues to be significant spare capacity in the domestic economy."

New order growth picked up at the quickest pace in the last three months. But survey members reported that purchasing activity of European customers remained subdued.