Saudi PMI fractionally lower in July

The headline Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) eased marginally to 54.9 in July from 55.0 in June.  Although the index has rebounded over the last couple of months, year-to-date the headline PMI averaged 53.4, well below the 56.0 average for the same period last year, which indicates a much slower rate of growth in the Kingdom’s non-oil private sector so far this year. 

However, oil production has increased sharply in the last couple of months, reaching 10.65mn bpd in July (Bloomberg estimates), with production year-to-date up 1.3% on average 2017 production.  If oil production is maintained at current levels through the rest of the year, then oil sector growth could be closer to 3% than the 0.5% we had pencilled in for 2018.  This would typically filter through to higher oil-related manufacturing, transport and storage and utilities sectors, boosting non-oil sector growth as well.  As a result, we see the risks to our 2018 GDP growth forecast of 1.5% as skewed to the upside even if non-oil sector growth has slowed so far this year.  

The PMI survey showed both output and new orders increased sharply last month, although at a slightly slower rate than in June.  However, once again the year-to-date average for both series indicate much softer growth than for the same period in 2017.  Employment increased modestly in July, as did new export orders.  There is very little evidence of wage growth in Saudi Arabia’s private sector, with the staff costs index at 50.3 in July, similar to the prior two months. 

While input costs continued to rise in July, the rate of increase was slower than in July. The vast majority of firms kept selling prices unchanged last month, although the output price index was fractionally below the neutral 50.0 level.  The backlogs of work increased sharply in July, with some firms attributing this to delays in ongoing projects.

Firms saw inventories rise at the fastest rate this year in July, which may indicate some optimism about improving demand in the near term.  More than 18% of respondents expected their output to be higher in 12 months’ time, down from more than 40% earlier in the year.  Given the sharp rise in actual output and new orders in June and July, it is reasonable for expectations to be more modest going forward.     

Saudi Arabia PMI: Employment growth is subdued by historical standards

Source: IHS Markit, Emirates NBD Research

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