Saudi PMI softer in May

The Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) eased somewhat to 55.3 in May from 56.5 in April, signaling a slightly slower rate of expansion in the non-oil private sector.  Output continued to rise very strongly last month, although the index slipped to 61.4 from 63.7 in April.  However, new orders growth slowed sharply, with the index falling to 56.4 from 61.3 in April.  Part of this was due to weaker external demand – export orders declined on average for the second month in a row in May.           

Employment increased on average in May, with the employment index rising to 51.1, the highest reading since August 2016.  However, the rate of employment growth remains modest overall. 

Firms continued to accumulate pre-production inventory at a robust rate, most likely in anticipation of future demand. This is consistent with the rise in the business optimism component, which showed more firms expecting output to rise over the next 12 months, compared with the April survey.

Price pressures eased in May, with the overall input prices index close to the neutral 50-level (50.4), well below April’s 53.5.  May’s input price inflation was the weakest since the series began in August 2009, as purchase costs were broadly unchanged m/m.  Staff costs were also contained in May.  Selling prices were also close to neutral in May, at just under 50.0. 

Our analysis shows that the Emirates NBD PMI is highly correlated with real non-oil GDP growth in Saudi Arabia (77% correlation), making it a good proxy for the less frequently released GDP data series.  The PMI surveys year-to-date signal a faster rate of non-oil GDP growth, in line with our expectations.  However, the recent decision by OPEC to extend production cuts by another 9 months suggests that the oil sector is now likely to contract in 2017 compared to our previous forecast of ‘no change’.  As a result our 2017 GDP growth forecast is currently under review. 

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