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Saudi non-oil private sector growth rises, employment slows

Spurred by a strong rise in new orders, Saudi's PMI rose to a 14-month high of 56.6 in February, the latest Emirates NBD report produced by IHS Markit shows.

Stronger domestic demand underpins improvement in business conditions in February Output growth ticks up to three-month high Employment rises only fractionally amid tighter cost management

Saudi Arabia's non-oil private sector economic growth climbed in February to its highest levels since December 2017 while the country's employment index slowed to its lowest in five years, according to the latest Purchasing Managers Index (PMI) report released by Emirates NBD.

The report, which is sponsored by Emirates NBD and produced by Dubai lender IHS Markit, showed the kingdom's new orders index climbing to a 46-month high in February. This indicated a steep growth rate in new businesses, with reports of new products and services lifting overall sales.

Spurred by the strong rise in new orders, Saudi Arabia's PMI rose to a 14-month high of 56.6 in February.

"The main driver for the improvement in February was a stronger rise in new orders, despite the second consecutive decline in new export orders. This suggests that it is domestic demand driving order growth," said Khatija Haque, head of MENA research at Emirates NBD.


Saudi Arabia new orders index. Source: Emirates NBD PMI survey produced by IHS Markit


Impact of higher demand

The increasing demand has, in turn, led to higher overall output in February, with the rate of growth building on momentum from the previous month. Output growth has ticked up to a three-month high, the PMI report states, with more than half of the surveyed firms projected to increase their output in the coming year.

Higher output levels have caused a strong increase in purchasing activity, as businesses aligned their buying levels to their output requirements.

"Businesses increased their stock of pre-production inventories at the fastest rate since September, likely reflecting both the rise in new orders as well as optimism for future order growth," Khatija Haque said.

The non-oil private sector has bounced back at the start of 2019 after coping with the introduction of a 5 percent VAT in the previous year.  The upturn in business conditions was led by the sharpest increase in new businesses since August 2015.


Hiring in the doldrums

Despite an increase in the number of new businesses, the report shows barely any evidence of wage growth or increased hiring.

"Employment in the private sector was broadly unchanged, with fewer than 1 percent of firms surveyed reporting increased hiring. The employment index was the lowest in nearly five years in February at 50.2," Khatija Haque said.

According to anecdotal evidence from the PMI report, the lackluster hiring trend is partially due to cost-controlling measures amid strong competitive pressures. It must also be noted that Saudi Arabia increased fees for the hiring of foreign workers last year.


Saudi Arabia employment index. Source: Emirates NBD PMI survey produced by IHS Markit