Saudi PMI rises to 2018 high

The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) rebounded to 55.0 in June from 53.2 in May, the highest reading this year.  Both output and new work increased at the sharpest rate this year, underpinning the rise in the headline index.  Export orders increased in June for the first time since January, although the rise was relatively modest by historical standards. 

Firms cited increased promotional activities, marketing efforts and ‘improving business conditions’ as factors driving output and new order growth last month.  Indeed, selling prices were largely unchanged last month even as input costs increased at a sharper rate than in May, signalling a squeeze on margins.  Employment increased in June, albeit modestly. 

The sharp rise in output and new work led to firms boosting their purchasing activity sharply in June.  The quantity of purchases index rose to 56.0 from 53.0 in May, and the highest reading for 2018.  Stocks of pre-production inventories also increased at the sharpest rate since February.  The backlogs of work increased at the fastest rate in 11 months, following two months of decline. 

We had maintained that the record weakness in the headline PMI earlier this year was at odds with increased government spending and higher oil prices, and more than 40% of firms surveyed had been anticipating higher output, with the ‘future output’ index above 71 every month since February.  Now that activity and new work have indeed increased, it is unsurprising that businesses are more cautious about the prospect of further increases from current levels.  As the result, the ‘future output’ index has declined sharply to 56.8 in June, with only around 14% of businesses expecting their output to be even higher in a year’s time.  

Overall, the June PMI data supports our view that the non-oil sector is recovering after a slow start to the year.  An expected rise in oil production following last week’s OPEC meetings should also boost activity in the manufacturing sector in H2 2018

Saudi Arabia headline PMI and Brent oil price

Source: IHS Markit, Emirates NBD Research

Click here to download the full report.