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Khatija Haque - Head of MENA Research
Published Date: 03 October 2017
The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) eased slightly in September to 55.5 but was broadly stable in the 55.5-56.0 range through Q3 2017. The headline index readings suggest a solid rate of expansion in the Saudi non-oil economy in the third quarter.
Output rose at a faster rate in September, but new orders growth eased slightly. External demand was weaker, with the new export orders index declining to 51.2 from 53.0, but remaining in expansion territory (unlike in the UAE where new export orders declined last month).
The employment index remained unchanged at 50.7 last month, indicating only a marginal rise in jobs. Firms continued to boost their quantity of purchases, and inventories accumulated at a sharp rate. Business optimism also improved relative to August. However, business optimism in September (and year-to-date) remains well below the series average.
Firms reduced selling prices on average in September, in order to remain competitive. At 49.4, the selling price index was the lowest since May 2016. There was some relief on producer price inflation, with the input cost index easing to 52.8 from 53.0 in August. Nevertheless, margins were further squeezed last month.
Year-to-date, the Saudi PMI has averaged 55.9, higher than the same period last year but well below the series average of 58.1. This suggests to us that non-oil GDP growth in the Kingdom so far this year is likely to be stronger than 2016, but weaker than we have seen in the last few years (pre-2015). This makes sense in the context of sharply lower oil prices, which have been accompanied by some fiscal consolidation over the last 18 months.
Recently announced structural reforms, including the easing of restrictions on women, and the issuance of another USD 12bn in external debt should boost sentiment, and suggests that economic reform momentum may be accelerating again.
Source: IHS Markit, Emirates NBD Research
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