Saudi Arabia: PMI at series low in October

The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) declined to 53.2 in October from 55.3 in September, the lowest reading since the series began in 2009. However, the reading still indicated an expansion in the non-oil sector last month, albeit at a slower rate. 

The biggest slowdown in October was in output, with this sub-index falling to 57.1 from 61.5 in September. New order growth was slower as well, at 54.8 compared with 56.5 in September.  Both output and new orders expanded at the slowest rate on record last month.  Export orders increased only slightly on average last month (50.8), contributing to lower overall new orders growth. 

Employment was broadly unchanged in October, with the index at 50.6.  Backlogs of work were also stable last month and suppliers’ delivery times shortened, all of which points to excess capacity in the non-oil private sector.  Purchasing activity remained relatively high at 57.9, only slightly softer than September. 

Input cost inflation picked up slightly in October but is relatively low compared with 2015.  Selling prices were marginally lower for the second month in a row, with only 3% of firms indicating that they had cut prices in order to secure new work in a competitive environment.  The majority of firms kept output prices unchanged last month. 

Overall, the PMI survey for October suggests that growth in the non-oil sector has slowed at the start of Q4, after a relatively strong Q3.  This is in line with our expectations (see last month’s PMI note published on 5 October), and follows further fiscal tightening measures - including public sector wage cuts - announced at the start of last month. 

The average PMI for the year-to-October 2016 is 54.7, well below the 57.3 average for 2015 and signaling a slowdown in non-oil sector growth this year. The data supports our decision to revise down our GDP growth forecast for Saudi Arabia to 1.4% in 2016 from 1.9% previously.  We expect to see growth accelerate to 1.8% in 2017. (See MENA Quarterly published 17 October for more detail on forecast revisions).   

Emirates NBD Saudi Arabia Purchasing Managers' Index

Source: Emirates NBD Research

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