Business activity in the non-oil private sectors of the Arab world’s two biggest economies continued to improve in September as the recovery from the pandemic gathers pace.
Saudi Arabia’s IHS Markit Purchasing Managers’ Index increased to 58.6 in September from 54.1 in August, the largest gain since survey data was collected 12 years ago. A reading above 50 indicates economic expansion, while anything below points to a contraction.
The reading signalled the strongest improvement in the kingdom’s non-oil operating conditions since August 2015 as its economy bounces back from the pandemic-driven slowdown. The latest data indicated a substantial increase in new orders for non-oil private sector companies, the highest in seven years.
According to businesses surveyed, this was largely due to a boost in domestic client demand as Covid-19 travel restrictions were relaxed and more clients returned to offices. Although growth was strong overall, growth in new orders from abroad was comparatively subdued, according to IHS Markit.
“The record rise in the PMI will be hugely encouraging for Saudi Arabian businesses,” David Owen, an economist at IHS Markit, said. “After two successive falls, the latest reading showed that the economic recovery has stamina, and the relaxation of pandemic measures will release new waves of demand.”
Despite the increase in new orders, there was little impact on the workforce as employment continued to rise at a marginal rate, Mr Owen said. However, the rate of job creation rose to the quickest since June, according to IHS Markit. Demand pressures and rising business optimism should lead more companies to hire staff over the final quarter of the year, he added.
The headline PMI reading for the UAE slipped to 53.3 in September, from 53.8 in August, but above the readings seen in the 23 months prior to July. The index has exceeded the 50 mark in each of the past 10 months, with output growth and Expo 2020 driving a marked increase in activity levels in the Arab world's second-largest economy.
Backlogs of work increased to the greatest extent in a year and a half as companies cited lack of capacity to fulfil new orders, while working on current projects. However, job creation softened from August.
Business expectations improved for the first time in three months, as companies expect a pick-up in activity from Expo 2020 and relaxed pandemic measures, according to IHS Markit.
The output index had the strongest expansionary impact in September, with the latest data indicating a marked rise in activity levels. Companies said that growing demand pressure and increased project work were largely behind the expansion.
“With Expo 2020 beginning, the UAE economy appears in good shape,” Mr Owen said.
“The PMI ticked down to 53.3 in September but still pointed to a strong improvement in non-oil business conditions, as firms continued to see a recovery in demand from the pandemic. A loosening of global travel measures helped to support the rise in new business.”
New orders in the country increased strongly in September, spurred by a continued recovery in footfall and contracts related to Expo 2020 Dubai. Export orders returned to growth after falling in each month since May, according to the survey.
Meanwhile, the headline PMI reading for Egypt’s non-oil private sector economy fell to a four-month low of 48.9 in September, from 49.8 in August. The index was below the 50 neutral mark for the 10th month in a row.
However, Egyptian companies in the non-oil private sector reported a record level of confidence towards future business activity in September as optimism grew that the Arab world's third-largest economy will recover from the Covid-19 pandemic over the next 12 months, the survey found.
“The rise in confidence coincided with a faster vaccination programme in Egypt and a further relaxation of travel measures that should aid tourism income in the fourth quarter,” Mr Owen said.
