Saudi Arabia's non-oil private sector economy expands to highest level in eight months

The kingdom's Purchasing Managers' Index climbed to 51 in October, boosted by a rise in output

Saudi Arabia's non-oil private sector economy expanded for a second straight month in October, its highest reading in eight months, boosted by a rise in output as the kingdom continues to recover from the pandemic-induced slowdown.

The seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers' Index – a composite gauge designed to give a single-figure snapshot of operating conditions in the non-oil private sector economy – rose to 51 from 50.7 in September. A reading above the neutral 50 level indicates an economic expansion, while a reading below points to a contraction.

The upturn was supported by a stronger rise in output, with growth accelerating at its quickest pace since February. Firms seeing higher activity mostly attributed it to increased sales, new contracts and the resumption of some projects.

However, in contrast to the improving output trend, the overall rate of demand growth softened to a marginal pace in October. Part of the slowdown was due to a renewed fall in exports as firms struggled to revive orders with foreign clients.

"While the latest PMI data indicated a further expansion in the Saudi Arabia non-oil private sector in October, there were reasons for fresh concern about the pace of recovery from the Covid-19 outbreak,” David Owen, an economist at IHS Markit, said.

Efforts to increase output at Saudi Arabian companies led to a renewed expansion in purchasing activity in October. Firms also looked to build stocks, as inventories of purchased items rose at the strongest pace since July. Companies were able to improve capacity, which allowed them to reduce backlogs quicker.

October data also signalled a modest rise in input prices at the start of the fourth quarter. The rate of inflation picked up from the previous month, driven by higher material and transport costs, and was the second-sharpest rise for more than two years.

The Covid-19 pandemic has tipped the global economy into the deepest recession since the 1930s. The International Monetary Fund estimates global economic output will shrink 4.4 per cent this year. The latest data suggests economies are recovering as business momentum gathers pace with an easing of travel restrictions.

That recovery, however, is under threat with the second wave of Covid-19 gripping parts of Asia and Europe, sending major European economies back into lockdowns.

In the UAE, the headline UAE PMI fell to 49.5 from 51 in September. The first marginal drop in new business in five months underpinned the decline.

Surveyed firms noted that increased competition and a slow improvement in market activity led to weaker sales in October. With the pandemic accelerating in some parts of the world, export growth remained mild, although some UAE firms won new business from other GCC countries.

"While the decline was mild, it nonetheless showed a stalling of growth momentum," Mr Owen said.

Meanwhile, the non-oil private sector in Egypt, the Arab world's third-largest economy, grew at the strongest rate since the end of 2014, according to the latest PMI survey data. Growth in both output and new orders strengthened, leading to a renewed rise in input purchases.

Egypt's headline PMI rose to 51.4 in October, from 50.4 in September, signalling a second consecutive monthly improvement.

The rate of activity growth in October was the fastest since August 2014, and new orders also grew at a quicker rate. Firms attributed sales growth to greater market activity within Egypt and a strong increase in new export business.

"The relatively strong upturn will encourage businesses, but also highlights the extent of the gap between current and pre-Covid activity levels that firms still need to abridge," Mr Owen said. "Growth could accelerate further if restrictions remain loose."

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