Saudi PMI hits 18-month high on new order growth

Saudi Arabia’s Purchasing Managers’ Index (PMI) rose to 57 in February, the highest reading since August 2015 due to a sharp rise in new orders and output, Emirates NBD said in its latest PMI report.

New order growth accelerated at the fastest rate in a year-and-a-half, supported by higher new export orders. 

The surveyed firms also cited new projects, promotional activity and stronger underlying demand as reasons for the stronger growth in new work last month, the bank said.

Job creation continued to remain slow, with the employment index close to the neutral level at 50.3 in February – marginally lower than January’s reading. 

Backlogs of work increased at the fastest rate since May 2015, due to strong rise in demand combined with weak jobs growth.

“Producer price inflation increased in February, with overall input costs rising at a faster rate than in January, largely due to higher product purchase costs as staff costs were contained,” said Khatija Haque, Head of MENA Research at Emirates NBD.

Selling prices rose at the fastest rate since August.  Meanwhile, the average rise in selling prices was modest, with this index at 51.3.

Purchasing activity was strong in February driven by faster output growth and relatively high optimism about the coming twelve months, the report said. 

The business optimism index eased slightly to 63.3 in February, but remained near a six-month high.  Inventories rose, but at a slightly slower rate than in January, it added. 

The bank attributed the faster growth in private sector activity at the start this year to improved sentiment due to higher oil prices, improved liquidity in the financial system and the payment of arrears by government to the corporate sector. 

“Nevertheless, 2017 is likely to remain a challenging year, with households expected to face further cuts to energy subsidies and low wage growth,” Haque said. “Provided oil prices remain around current levels however, we expect overall GDP growth to improve slightly compared to 2016.”  

The Emirates NBD PMI is based on data compiled from a survey of companies in manufacturing, services, construction, and other non-oil sectors.  A level over 50 indicates an increase, while below 50 indicates contraction.