Saudi private sector growth rises in February

Saudi Arabia's non-oil private sector growth picked up slightly in February over the previous month, supported by an increase in output growth, MEFIC Capital said in a new report.

The Purchasing Managers’ Index (PMI) rose to 53.2 in February from 53.0 in January, a month that saw the introduction of 5 percent value-added tax (VAT) and fuel and electricity price hikes.

Output growth rose to 56.9 last month from 55.1 in January, but growth in new orders fell to 52.9 in February from 54.7.

While employment growth declined slightly, input price inflation fell to 53.8 in February, the report said.

Output price inflation turned negative to 47.6, showing signs of companies possibly "discounting to maintain market share in the wake of weak consumer demand."

The Kingdom’s inflation rate jumped to 3.0 percent year-on-year (YoY) in January after the implementation of 5 percent value-added tax (VAT) and utility price hikes.

“Inflation is expected to rise further in the coming months, as consumer spending can be expected to recover from the initial impact of VAT and companies and retailers would raise the prices instead of absorbing additional costs,” the report noted.

Point-of-sale (POS) transactions in Saudi Arabia grew at 4.3 percent YoY in January to SAR 16.4 billion. On a month-on-month basis, transactions dropped 19 percent from SAR 20.2 billion in December 2017, due to VAT and fuel price hikes resulting in "more rationalized spending."

Bank credit continued to decline for the eleventh consecutive month, decreasing 0.6 percent YoY in January to SAR 1.389 trillion, primarily due to a 0.9 percent decline in private sector lending.

However, money supply increased 1.4 percent YoY in January to SAR 1.794 trillion, mainly owing to 4.5 percent growth in demand deposits that constituted around 57 percent of the Kingdom’s total money supply.

Separately, the report said that Saudi Arabia marginally decreased oil production last month, producing 9.88 million barrels of oil per day (bpd) to keep below the OPEC production limit.

OPEC has agreed to slash output by about 1.2 million bpd, as part of a deal with Russia and other non-OPEC producers in order to end a global oil supply glut and support prices. The deal will remain valid until end-2018.