Non-oil business activity strengthens in Saudi Arabia and UAE

Momentum continues in Arab world's largest economies as new orders rapidly increase

A view of Abu Dhabi. Non-oil businesses in the UAE registered the strongest new order growth since 2019 in June. Photo: DCT Abu Dhabi

Business activity in the non-oil private sector economies of Saudi Arabia and the UAE continued to strengthen in June, with output and new orders increasing rapidly.

The reading for Saudi Arabia, the Arab world's largest economy, on the Riyad Bank purchasing managers' index rose to 59.6 in June, from 58.5 in May.

This was well above the neutral 50-point mark that separates growth from contraction, as output in the kingdom rose at the steepest rate since March 2015, while sales growth was the strongest in about nine years.

Business activity in the UAE’s non-oil private sector also strengthened as new order growth hit a four-year high in June, marking the most pronounced improvement since June 2019.

The health of the non-oil private sector has now improved in each of the past 31 survey periods.

The seasonally adjusted S&P Global purchasing managers’ index reading of the Arab world's second-largest economy climbed to 56.9 in June, from 55.5 in May.

In response to an uptick in both output and new orders, companies in Saudi Arabia increased their purchasing activity at the fastest pace in the PMI survey's history to meet higher business requirements and bolster stock, with the rate of inventory accumulation hitting a ten-month high.

"The kingdom’s non-oil private sector remained on a steeply upward growth trajectory by the end of the second quarter, as inflows of new business accelerated, particularly in construction and tourism activities," said Riyad Bank chief economist Naif Al-Ghaith.

Job growth in the kingdom was maintained, with some companies reporting that they were paying higher wages to retain experienced staff.

Increased demand and improved market conditions drove employment growth to its strongest level since August 2015.

"Looking ahead, positive sentiments for activity are still strong," Mr Al-Gaith said.

"The recent pick-up in demand and sales has improved confidence across industries and expectations of an extension of these positive trends in the coming months.

"Ultimately, the government-backed investments, particularly in construction or infrastructure projects, remain ... vital for business activity.”

Emirates NBD is forecasting non-oil growth of 4.8 per cent in Saudi Arabia this year, unchanged from 2022.

Meanwhile in the UAE, new business improved rapidly in June, with the rate of expansion hitting a four-year high, largely supported by an increase in new orders from abroad that was fuelled by stronger customer demand.

The increase in employment extended the current sequence of job creation to 14 months, according to the survey.

Higher staffing levels were linked to rising workloads and the recruitment of additional sales workers.

"The extent of the inflows in new work was such that backlogs of work continued to rise in June despite a ramping up of activity, further job creation and an expansion of purchasing activity," said Andrew Harker, economics director at S&P Global Market Intelligence.

"This should therefore support further increases in staffing levels in the months to come as firms try to keep on top of workloads. All in all, the non-oil private sector remained on a strong footing at the midway point of the year, and is well placed for further growth in H2 [the second half]."

Non-oil growth in the UAE is forecast at 5.0 per cent this year, according to Emirates NBD.

In Egypt, the non-oil private sector economy registered its slowest decline in output in about two years as the PMI reading rose to a 22-month high, but remained within contraction territory.

The country's headline S&P Global Egypt Purchasing Managers’ Index rose to 49.1 in June, from 47.8 in May, its highest level since August 2021.

Price pressures, liquidity issues and weak demand drove total business activity volumes lower at the end of the second quarter, but the rate of decline was the weakest in 21 months.

"After the steep price increases seen at the start of the year, fewer companies are reporting such high cost pressures," said Joe Hayes, principal economist at S&P Global Market Intelligence.

"The overall rate of input price inflation cooled to a 16-month low during June, which led output charges to rise at a slightly weaker rate.

"If key survey indicators such as output and new orders can sustain their upward current trajectory, we may see an improvement in business sentiment in the coming months."