Saudi Arabian private-sector activity eases off

Saudi Arabia's business growth slows last month but the economy remains robust, according to a survey released yesterday.

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The rate of private-sector business expansion in Saudi Arabia eased slightly last month as new orders declined, a survey released yesterday shows.

Despite the dip, the strength of the data suggested the economy was shrugging off the impact of the global slowdown, said SABB HSBC, which compiled the purchasing managers' index (PMI).

"Saudi Arabia's PMI score remained strong in December as the domestic economy continued to sidestep the worst effects of the global slowdown," Simon Williams, a regional chief economist for HSBC, wrote in a research note.

HSBC's Saudi Arabia PMI declined to 57.7 last month, down from a three-month high of 58.1 the month before, according to the data released yesterday. A score above 50 indicates an increase in activity.

Employment increased at its fastest rate since August. However, the new-order index slowed to 65.4 last month from 67.7 in the previous month. Backlogs of work rose again, with the rate of increase the highest for seven months.

Part of the reason for the resilience of the economy was the robustness of public spending, which is expected to continue to rise over this year, said Mr Williams.

The government last week approved a stimulus budget for this year, estimating spending at 690 billion riyals (Dh675.84bn). It follows a 25 per cent rise in public spending last year.

"The relatively closed nature of the Saudi economy - non-oil exports are modest and the banking system is domestically funded - also suggests that the private sector should continue to be shielded from weakening global growth and strained international liquidity," wrote Mr Williams. The rise in the backlog of work and a further pick-up in the cost of labour indicated the economy may be running up against capacity constraints, he said.

The gains were modest, however, which did not point towards a return to the soaring inflation that beset the kingdom in 2007 and 2008, he said. While both input and output prices rose last month, input price inflation was the lowest for more than a year.

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