Today sees the release of December data from the Emirates NBD Purchasing Managers’ Index® (PMI®) for Saudi Arabia. The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the Saudi Arabian private sector.
Commenting on the Saudi Arabia PMI® survey, Daniel Richards, MENA Economist at Emirates NBD, said:
“The headline Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) fell to 54.5 in December from 55.2 in November. The renewed dip in the headline index following November’s 2018 high confirms this year as the weakest in the series, averaging 53.8 as compared to an annual average of 58.0 over the previous eight years. This indicates a fairly weak expansion in the non-oil private economy as compared to previous years, even despite the pick-up in oil prices enjoyed earlier in 2018.
“While output dipped from its recent peak in November, it remained comfortably above the 2018 average of 57.6, coming in at 58.2. New orders followed a similar trend, falling from November but at 58.4 still stronger than seen earlier in the year. However, new export orders remained weak implying that the bulk of new orders are being driven by domestic demand, achieved through continued price discounting. Output prices decreased at a marginally faster pace in December, as firms continued to cite strong domestic competition.
“This will have contributed to margin pressure for Saudi Arabian firms in December, as while output prices decreased, input prices remained in expansionary territory. Purchase prices accelerated, as 4% of responders reported an increase in costs, related to higher equipment and raw materials prices. Staff costs also accelerated to the fastest pace since June, though at a slower pace than purchase costs.
“Business optimism remains strong in Saudi Arabia, and the future output index climbed to the highest reading in five years. 53.8% of respondents expect that output will be higher in 12 months’ time, with no firms expecting a deterioration in conditions.”
The main findings of the December survey were as follows:
-Headline PMI dips to 54.5 from November’s 55.2
-Rate of job creation slips to 20-month low
-Selling prices reduced amid reports of strong competitive pressures
The headline seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index™ (PMI®) – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – registered 54.5 in December, down slightly from November’s 11-month high of 55.2. The fall in the index brought the fourth quarter average into line with that recorded in the three months to September, which was in turn comfortably above the trend level seen over the first half of 2018.
Despite easing since November, output growth in December remained quicker than the average over 2018 as a whole. The survey indicated that business activity had risen in part due to stronger demand, with companies noting a further – albeit slightly slower – increase in inflows of new business. New export orders were up for a third straight month but only fractionally, indicating that the pick-up in demand was centered on the domestic market.
While underlying market conditions were reported to have improved, the survey continued to point to strong competitive pressures across the private sector and, on average, firms reduced selling prices in order to help support sales. Though only slight, December’s decrease in average output charges was more marked than that seen in the penultimate month of the year.
There was a small squeeze on margins as firms reported slight increases in both purchase prices and staff pay, though cost pressures, in general, were muted by historical standards.
Elsewhere, latest data showed the continuation of a weak rate of employment growth across the non-oil private sector. December’s increase in staffing numbers was, in fact, the smallest since April 2017, with the vast majority of companies keeping headcounts unchanged from the month before. Similarly, the rate of growth of purchasing activity also eased, down to the weakest in the survey’s nine-and-a-half year history. Stocks rose more slowly as a result, while average lead times on purchased items shortened.
Looking ahead, business confidence towards growth prospects over the next 12 months improved to the highest in five years. Firms reported hopes of sustained improvement in market conditions, and foresee new products, competitive pricing and greater market activity leading to output growth.
December’s survey indicated another demand-driven rise in business activity across Saudi Arabia’s non-oil private sector. Around one-fifth of surveyed businesses recorded a rise in output, many of which linked the upturn to increased client interest and a higher level of new orders. The rate of business activity growth eased slightly from November’s three-month high but was nonetheless faster than the average over 2018 as a whole.
The seasonally adjusted New Orders Index remained well above the 50.0 no-change threshold in December, signaling another solid monthly rise in the level of new business received by non-oil private sector firms operating in Saudi Arabia. The index has indicated a sustained recovery in demand since the brief fall in order books last April. Anecdotal evidence suggested that competitive pricing strategies helped boost sales in the final month of the year.
The main impetus behind the private sector’s recovery continued to come from the domestic market, according to the latest data. New export orders were found to have risen only slightly in December, with the rate of increase the slowest in the current three-month sequence of growth and well below that of total new business.
Backlogs of Work
Amid sustained growth in inflows of new orders, the amount of outstanding business (i.e. work in hand but not yet completed) continued to increase across the non-oil private sector during December. It marked the seventh straight monthly rise in backlogs of work. However, mirroring the trend in new orders, the rate of growth was slightly slower than in the penultimate month of the year.
Suppliers’ Delivery Times
Saudi Arabia’s non-oil private sector businesses recorded an improvement in supplier delivery times in December. This was highlighted by the respective seasonally adjusted index registering above the 50.0 no-change mark, as has been the case in every month since August 2011. That said, the extent of the improvement in lead times was only modest and weaker than the trend over the year as a whole.
December saw only a marginal rise in the level of employment across Saudi Arabia’s non-oil private sector. Having slowed for the second month in a row, the rate of job creation was the weakest seen since April 2017. In cases where a rise in staffing numbers was recorded, several businesses reported that people had been hired in technical positions specific to new projects.
Reflecting strong competition among businesses, average prices charged for goods and services fell again in December. With the exception of the slight rise seen at the beginning of the fourth quarter, a fall in selling prices has been recorded in every month since last July. That said, as has generally been the case throughout this period, the extent to which output charges decreased in December was only marginal.
Overall Input Prices
Saudi Arabia’s non-oil private sector businesses faced a rise in overall operating expenses in December. The increase in cost burdens reflected a combination of higher prices paid for purchases and slight upward salary pressures. However, despite ticking up to a three-month high, the respective seasonally adjusted index remained indicative of only a modest rate of cost inflation overall and was well below its long-run average of 54.0.
After having been broadly unchanged in November, average prices paid for purchases rose slightly in the final month of the year. Where an increase was recorded (at approximately 4% of firms), this was linked to higher prices paid for equipment and raw materials. The vast majority (over 93%) of companies recorded no change in purchasing costs, however.
Latest survey data indicated a rise in average staff pay for the second month in a row in December. Though only slight, the increase was the most marked since June. That said, most companies kept salaries and wages unchanged, which was reflective of both efforts to control costs and a degree of slack in the labor market.
Quantity of Purchases
The seasonally adjusted Quantity of Purchases Index recorded its lowest reading since the survey began almost nine-and-a-half years ago in December. Although remaining above the neutral 50.0 threshold, the index signaled only a modest rate of growth in buying activity and one that was notably slower than that seen in the previous survey period.
Stocks of Purchases
In line with the slowdown in the growth of purchasing activity, inventory levels across Saudi Arabia’s non-oil private sector also rose at a moderated pace in December. The increase in stocks of purchases (both raw materials and items for resale) was in fact only modest and the least marked since last May. This was in stark contrast to the near-record expansion in inventories recorded during the corresponding month in 2017.
Saudi Arabia’s non-oil private sector businesses recorded strong optimism towards the outlook for activity over the next 12 months in December. The degree of confidence was the highest seen for five years. Market conditions are generally expected to improve in 2019, with many firms hoping that new and improved products and greater marketing activity will help further enhance client demand.