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Khatija Haque - Head of Research & Chief Economist
Daniel Richards - MENA Economist
Published Date: 05 October 2021
Saudi Arabia’s PMI rose to 58.6 in September from 54.1 in August, the highest reading since 2015. The September survey showed a sharp rise in business activity and new work, both of which grew at a faster rate than in August. Firms also appeared to be building up inventory at a faster rate in September which also contributed positively to the headline PMI.
Employment in the private sector grew only modestly last month, with this component at 50.5. Input costs increased at the fastest rate since June but only some firms passed on the rise in input costs to buyers in September. Firms surveyed were the most optimistic about their future output than they have been since the start of 2021.
Saudi Arabia’s non-oil sector likely grew at a strong rate again in Q3 2021, with the PMI averaging 56.2, similar to the 56.0 average in Q2 21. We have recently revised up our forecast for Saudi Arabia’s non-oil GDP to 5.0% this year from 4.0% previously, and the latest PMI data is consistent with this.
Source: IHS Markit, Emirates NBD Research
The UAE’s headline PMI declined slightly to 53.3 in September from 53.8 in August. Business activity increased sharply but at a slightly slower rate than in August, while new order growth was solid. Encouragingly, new export orders increased for the first time in five months, likely reflecting the easing of travel restrictions.
However, job growth was softer than in August, supplier delivery times lengthened fractionally, and inventories grew at the slowest pace since May. Backlogs of work have been growing for the last three months and increased in September at the fastest rate since March 2020. This could support additional hiring in the coming months.
Input costs rose slightly in September but firms again reduced selling prices in a bid to secure new work. Average selling prices declined at the fastest rate since November 2020.
We expect to see improved growth momentum in Q4 as travel restrictions continue to be relaxed and Expo 2020 boosts domestic spending. Overall we expect the UAE non-oil sectors to grow 3.5% this year, accelerating to 4.0% in 2020.
Source: IHS Markit, Emirates NBD Research
Egypt’s headline PMI number slipped in September, coming in at 48.9 compared to the 49.8 recorded in August. This was the weakest reading since May, although the Q3 average of 49.3 was still the strongest this year. According to the recent MPC communiqué from the Central Bank of Egypt (CBE), preliminary growth in that quarter (Q1 of fiscal 2021/22) was 7.7% y/y, reflecting the recovery from the previous year’s trough at the peak of the pandemic crisis.
Looking at the PMI’s subcomponents, output and new orders declined compared to the previous month, with both metrics coming in modestly below the neutral 50.0 level following expansionary 50.0-plus readings in August. New export orders contracted for the first time since March, with this sub-index declining by more than 4 points last month. Firms cited the tightening of pandemic-related restrictions in parts of Asia as they grapple with the spread of the Delta variant of coronavirus as being behind the weaker export demand.
Input prices continued to rise at an elevated pace, with the ongoing global supply chain issues still inducing upwards pressure. Respondents mentioned high prices for shipping and raw materials, and staff costs also ticked up in September after contracting briefly in August. Some of these costs are being passed on to customers, as output prices rose once again, but at a slower rate than in September. Only 2% of respondents said that they had raised their output prices last month, which should alleviate some pressure on CPI inflation. This ticked up to 5.7% in August, but remains well within the CBE’s target range, and having held for the seventh meeting in a row last month we expect no rates change from the central bank through the rest of the year.
Notably, business optimism rose to a series high in September, with firms bullish with regards growth prospects as vaccination rates rise, restrictions are eased, and tourism starts to recover. While the tourism sector has not rebounded as quickly as we might have expected at the start of the year, the outlook through the last quarter is decidedly more positive. Job numbers in September rose modestly as firms started to build capacity ahead of an expected uptick in demand.
UAE and Saudi PMIs slip in February