Business activity in the non-oil private sector economies of Saudi Arabia and the UAE remained firmly in expansion territory, continuing the cycle of improvement in July amid robust economic momentum in the Arab world's largest economies.
The headline Riyad Bank Saudi Arabia purchasing managers' index reading reached 57.7 in July, lower than 59.6 recorded in June. It, however, stayed well above the neutral 50-point mark that separates growth from contraction.
The latest reading was also higher than the long-run survey average and signalled strong underlying business conditions in the kingdom.
The strong performance by the non-oil private sector companies in July reflects “favourable domestic economic conditions” that drove the sharp upturn in business activity, albeit at a slower pace than in June.
Companies in Saudi Arabia, Opec’s top oil producer, also boosted purchasing in July, to meet the requirements of forthcoming projects and planned business growth.
The softer pace of new order growth, however, was the main factor holding back the headline PMI in July. Although still sharp, the rate of new business expansion eased after reaching its highest level for more than eight years in June amid rising competitive pressures and subsequent price discounting to stimulate sales.
“The effects from tighter monetary conditions have started to be mildly felt across the kingdom’s private sector in July after a strong first-half performance,” said Riyad Bank chief economist Naif Al-Ghaith.
“Rising cost of capital and intense competitive pressures are among the factors holding back new business expansion.”
In contrast to the new orders trend, the latest data indicated that the pace of business activity growth remained close to June. The fastest rates of output expansion were reported by manufacturing and construction companies to catch up on unfinished work in July.
The rise in demand and consistent improvement in the health of the kingdom’s non-oil economy also drove employment in July, the 16th month in a row, although the pace of hiring growth was slower than June levels.
Saudi Arabia's economy expanded by 1.1 per cent in the second quarter of this year on an annual basis, slower than 3.8 per cent expansion in the first three months of the year.
However, the kingdom maintained 5.5 per cent growth in its non-oil economy in the first two quarters of this year, according to the flash estimate by the General Authority for Statistics.
Emirates NBD is forecasting non-oil growth of 4.8 per cent in Saudi Arabia this year, unchanged from 2022.
Meanwhile, business activity in the UAE’s non-oil private economy sector also continued growth momentum, as companies reported further uplifts in both employment and input buying. Robust output growth was accompanied by another sharp uplift in sales in July.
The health of the non-oil private sector in the Emirates has now improved in each of the past 32 survey periods.
The seasonally adjusted S&P Global purchasing managers’ index reading of the Arab world's second-largest economy reached 56 in July, slightly lower than the June level of 56.9.
“The headline PMI reading … showed that the sector remained in good health in general, with market conditions continuing to improve and firms reporting strong rates of both customer demand growth and job creation,” said David Owen, senior economist at S&P Global Market Intelligence.
“At the outset, the July findings signalled that the UAE non-oil sector will continue on its expansion path in the second half of this year.”
The overall sharp uplift in new orders provided companies with further impetus to expand their staffing levels, leading to a moderate rise in employment in July.
Businesses surveyed also reported an easing of cost pressures in July, as the rate of overall input price inflation softened to a three-month low, driven by lower commodity prices and freight costs.
Expectations for the year ahead were upbeat in July, climbing to the second-highest level in just over a year. Survey panellists often cited improving economic conditions, greater marketing and sales pipelines for growth forecasts.
“Boosting confidence was a softening of input cost pressures, which allowed firms to reduce their selling prices and expand stock holdings,” Mr Owen said.
The UAE economy grew by 7.9 per cent last year, the highest in 11 years, after expanding 4.4 per cent in 2021, supported by its non-oil sector at a time when the country is advancing its diversification strategy.
The sharp bounce back from the pandemic-induced slowdown is driven by non-oil growth in the UAE, which Emirates NBD expects to climb to 5 per cent this year.
Overall GDP is expected to expand by 3.3 per cent this year and 4.3 per cent in 2024, according to UAE Central Bank data.
Meanwhile in Egypt, the non-oil private sector economy continued to soften in July, however, the PMI index remained above its long-run survey average.
The country's headline S&P Global Egypt purchasing managers’ index edged higher to 49.2 in July, from 49.1 in June
“The Egypt PMI was again close to the 50 neutral mark in July … as business activity dropped at the weakest rate in almost two years,” Mr Owen said.
“The decline in new orders also showed further signs of softening, as firms reported initial pointers of a recovery in market demand following a lengthy downturn.”